United States: Deducting Travel And Entertainment Expenses With Confidence

When owners, managers and salespeople attend trade shows, call on customers and evaluate suppliers, they may incur travel and entertainment expenses. This article explains how manufacturers and distributors can legitimately deduct and properly substantiate expenses to ward off unwanted IRS attention. A sidebar discusses the importance of keeping business expenses separate from personal expenses.

Owners, managers and salespeople often incur travel and entertainment expenses. Manufacturers and distributors need to understand how to legitimately claim these deductions and properly substantiate them to ward off unwanted IRS attention.

Travel Expenses

Your company can deduct ordinary and necessary expenses that owners, employees and other business associates, such as prospective customers, suppliers or professional advisors, incur when traveling on business. These expenses include the travel costs of getting to and from your business destination, as well as any business-related expenses at your business destination. Examples include:

  • Transportation by car, bus, train, boat or plane;
  • Car rental at your destination;
  • Shipping and baggage fees;
  • Lodging and meals;
  • Dry cleaning and laundry;
  • Tips; and
  • Phone and Wi-Fi access charges.

You can deduct all travel expenses if your trip was entirely business related. But be careful to deduct only business-related expenses if you extend your business trip for a personal side trip. In addition, if you have an accountable plan, you can exclude any qualifying employee reimbursements for such expenses from the employee's taxable income, which also will reduce employment taxes.

Substantiation Requirements

Travel expenses, along with meals and entertainment costs, are IRS hot buttons. If your business claims these expenses for tax purposes, expect the IRS to review your records at some point. So, it is important to keep track of all expenses using a log, diary, notebook or any other written record. Hold on to all of this documentation for several years in case the IRS inquires about the deductions, including the expenses:

  • Amount;
  • Time and place; and
  • Business purpose.

If the expense is for meals or entertainment, you also must show the business relationship to the taxpayer of any person entertained. In general, business-related meals and entertainment costs are only 50% deductible and they can't be lavish or extravagant.

Alternative Methods

IRS requirements can turn expense reimbursement into a tedious, time-consuming process. As the employee travels, he or she must collect paper receipts and keep a log of all business meetings. Then he or she typically submits a monthly expense report for all travel expenses. These reports usually require managerial approval. Administrative delays may occur if documentation is incomplete or a supervisor questions the business purpose or reasonableness of an expense item.

The IRS does, however, allow some recordkeeping shortcuts that may be worthwhile. For example, a sales rep who sees the same customers on a regular basis may be able to enter just the customer's name in his or her day planner or Outlook calendar, rather than repeat all of the details for every visit. To simplify matters further, some businesses opt to use IRS-approved per diems, instead of reimbursing employees for their actual expenses for lodging, meals and incidentals while traveling.

Incidental costs do not include: 1) transportation between places of lodging or business and places where meals are taken or 2) mailing costs of filing travel vouchers and paying employer-sponsored charge card billings. These costs must be reimbursed for separately from per diems. Per diem rates vary, depending on where and when the employee travels. If your company uses per diem rates, employees do not have to meet the usual recordkeeping rules required by law. Rather, the employer simply pays the specified allowance to employees. However, they still must substantiate the time, place and business purpose of the travel. In addition, individuals who own 10% or more of the business cannot be reimbursed using per diem rates.

Planning and Training

Recordkeeping is critical when it comes to deducting travel and entertainment expenses. With proper planning and training, a tax advisor can help your company implement strong travel and entertainment expense reimbursement policies and procedures that will withstand IRS scrutiny.

Sidebar: Business vs. Personal expenses: What's Deductible?

Family-owned manufacturers tend to toe a fine line between personal and business expenses — and the IRS knows it. For example, a business owner might try to deduct the cost of an airplane ticket for a spouse to accompany the owner to attend a business convention. But unless there is a bona fide business reason for the spouse's presence, this expense is not deductible for business tax purposes. When a bill contains both personal and business expenses, it may seem easier to charge it all to the business. However, such shortcuts could lead the IRS to disallow the entire deduction. So, it is critical to maintain clear and detailed records of how you have split the bill to prove you are complying with the tax rules.

Commingling business and personal expenses may extend beyond travel. Owners may be tempted to deduct salary expense for family members who do not render services to the company, personal legal fees or home renovation costs as business expenses. There are also some gray areas, such as home office renovations and family birthday parties that are attended by key customers. It is important for business owners to understand what qualifies as a business expense and to always keep business accounts separate from personal accounts. If you have expenses which you are not certain how to treat, you should consult with your tax advisor or call us.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Brown Smith Wallace
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Brown Smith Wallace
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions