We will be discussing travel expenses as a “Travel Follow Up” item, but you will need to pay attention to your expenses long before you arrive back home. Accurate record keeping and document retention are important components of any business trip. Reconciling your business travel expenses will be much more efficient if your records are accurate and detailed. It is also important to remember that these costs may or may not be reimbursed by your company, submitting a thorough and detailed account of your expenses will expedite the process.
How do Corporations handle Travel Expenses?
Once your business travel is complete, your employer will require you to summarize the expenditures you incurred during your visit. And although the company will be “covering” many of the costs associated with your trip, it is important to remember that these costs are ultimately your responsibility.
A great place to start is to understand your companies business travel policy. BTG highly recommends reviewing and thoroughly following any policy regarding travel. For example the policy will most likely include, which travel expenses are reimbursed and which are not, additionally company policy may tell you when receipts are required for reimbursement. It is common practice for corporations to train traveling employees on policies relevant policies. However, this does not always happen and not knowing the policy is no excuse for not following the policy.
Corporate travel policies cover a wide variety of items, often including how to book a flight, specifics regarding hotel reservations and off hours activities. Understanding and following policy can often be the difference between getting reimbursed and footing the bill yourself, so it is worth your time to know the policy well.
Companies will often issue credit cards to be used for business expenses. Additionally the will often have accounts with business travel management companies. Either method is an attempt to control costs and track expenses. Company travel credit cards are an excellent method of tracking expenses and management companies will make arrangements and bill the company directly, avoiding the need for record keeping.
Beyond these purposely designed methods of tracking expenses, you will want to establish your own tracking habits. Smaller incidental expenses can be easily forgotten and as a result never reimbursed. You should train yourself to ask for receipts, have a specific location for storing all receipts and make notes on the receipt for future reference.
When you return from your trip, you will want to go through a process of reconciling your records with the receipts you saved. Documenting your expenses in great detail will allow for an easy transition from creating expenses to recouping your funds.
Business Travel Expenses as Tax Write Offs?
In the event that you are traveling for your own business, tracking and recording your expenses will be more important than ever. The cost of your travel is an investment in your business. You will likely have an expected return for your investment in the form of increased business or improved client relationships. And like any other investment the expenses you incur on a business trip can be written off on your business taxes. As you might expect, the IRS has some very specific rules for deducting travel expenses.
Let’s review a few types of expenses you may incur during your trip and discuss briefly the tax implications of each:
Transportation Costs – When you travel for business, your means of transportation is tax-deductible. In fact, just about anything related to getting there and getting home is accepted by the IRS as a tax deduction. This includes tolls, parking fees, rental cars, airline tickets, taxis and more.
You may deduct the cost of shipping any items too large to take along. As mentioned above, the cost of transportation is virtually always deductible, as long as the transportation has a business purpose. Taking a taxi to visit the Hoover Dam, will likely not be deductible.
Driving your personal vehicle for business carries it’s own method of tax deduction. It is common for business travelers to use what is called a “standard deduction” for tax purposes. The current standard deduction for personal vehicle use is 57.5 cents per mile. This deduction is intended to cover both gas purchases and vehicle maintenance required for the trip.
Meals – Meals consumed while on a business trip are categorized by the IRS as “Meals and Entertainment”. The cost of such meals are deductible at 50% of the cost of the meal. It seems that the IRS has determined that you will have meals whether home or on the road, so they only allow you to deduct one half of the cost of travel related meals.
In contrast, food that is purchased for consumption by the entire company and all of it’s employees is categorized as “Company Events and Kitchen Expenses”. These types of food purchases are 100% deductible according to the IRS.
Lodging – In general the cost of your lodging is deductible. Although be aware that not all hospitality expenses are eligible, so be sure to keep all itemized hotel invoices for tax determination. While staying, business related items such as WiFi. Conference room fees and equipment rentals are also deductible.
Dry cleaning services, tips and telephone charges for your business when away all qualify as a tax deduction.
Travel Expenses that Do Not Qualify as a Tax Deduction
There’s no getting one over on the IRS. It’s seen people try to claim all sorts of strange things as business expenses. Save yourself the trouble, as it will only increase the odds of you being audited.
Unreasonable Expenses – Understand that the IRS only considers reasonable travel expenses as tax-deductible. The IRS uses the term standard and ordinary for travel and business expenses. Additionally the IRS will need to view and expenses as “necessary” to allow the deduction.
Family along on Business Travel – Expenses incurred to visit family while on travel or bringing family along with you will not be tax-deductible.