Travel and Entertainment

Travel and Entertainment Questions

When are business meals deductible?

Normally, 50% of the cost of a meal is deductible when you are traveling away from home overnight for business. Meals that are considered business related entertainment are also 50% deductible. Be aware that there is additional substantiation required for business related entertainment.

Is a reimbursement for a business expense considered income?

An employer reimbursement for expense is not reportable as income so long as you give your employer the receipts and a detailed accounting of the expense. You must also return any advance money that was not used.

Are there any limits to what costs can be deducted for meals orĀ travel and entertainment?

There are no dollar limits, however, the expense must be “ordinary and necessary” for business. This means the amounts spent for business related travel should be reasonable, not extravagant. Business meals and entertainment are 50% deductible.

If I am on a temporary work assignment, can I deduct living expenses?

Living expenses, such as rent and utilities, that are required due to an employer assigned temporary work location, are deductible. A temporary work assignment is one that keeps you away from your tax home for less than one year. If the assignment is expected to last more than one year, the new location is considered your new tax home. If you are working for an employer and decide to temporarily live closer to your primary work location while keeping your normal tax home, those living expenses are not deductible.

What are or are not considered deductible travel and entertainment expenses?

Deductible travel expenses include:

  • Transportation, such as airfare, rental car and taxi fare
  • Personal use of a vehicle (either standard mileage rate or actual expenses)
  • Accommodations
  • Meals (50% of the cost)
  • Communications, such as telephone and fax
  • Incidentals, such as laundry service and baggage handling
  • Tips related to deductible travel expenses

Non-deductible travel expenses include:

  • Commuting between tax home and regular place of business
  • Portions of travel that are not business-related

Can business entertainment expenses be deducted?

Expenses that are “ordinary and necessary” to entertain a customer, client or employee are deductible if certain tests are met. The expense must be either directly related to business, the main purpose of the entertainment was to conduct business and business was conducted, or the entertainment was directly before or after a considerable business discussion.

What documents do I need to prove my travel and entertainment expenses?

A good rule of thumb is to keep all receipts while traveling. Make sure the receipts include the following:

  • Payee
  • Cost
  • Date
  • Place or description
  • Business Purpose

For entertainment, include the name and relationship of the recipient to your business, such as “Joe Smith, client” or “Jane Doe, supplier”.

What is the standard mileage deduction?

The standard mileage deduction is a per mile rate that is calculated by the IRS on an annual basis. The standard rate can be used in lieu of actual expenses. The standard mileage deduction for 2014 is 56 cents per business mile.

Are gifts given by employer to employee taxable?

If an employer, as a means of promoting goodwill, makes a general distribution to employees of hams, turkeys, or other merchandise of nominal value at Christmas or a comparable holiday, the value of the gifts is not included in the employees’ income. However, if an employer distributes cash, gift certificates, gift cards, or similar items of readily convertible cash value, the value of the gift(s) is an additional wages or salary regardless of value.

What is commuting mileage and can I deduct any of the costs?

You cannot deduct auto expenses of going between your home and your main or regular place of work. These costs are referred to as your personal commuting expenses.