by FitSmallBusiness.comThe Ultimate Guide

Deducting Travel And

Entertainment

You can:

“Write Off”

all your business travel and entertainment expenses.

You can:

“Write Off”

all your business travel and entertainment expenses.

But there are certain rules involved with obtaining a deduction for these expenses, and then the amount you can deduct is often reduced by half.

Necessary”“Ordinary AND

Necessary”“Ordinary AND

Two basic words about travel and entertainment deductions.

Ordinary expenseIs one that is common and

accepted in your industry.

Necessary expenseIs one that is helpful and appropriate for your trade or business.

Necessary expenseIs one that is helpful and appropriate for your trade or business.

Generally, you also must show that entertainment expenses (including meals) are directly related to, or associated with conducting trade or business.

What Can you Deduct?

TransportationAirline, train or bus tickets, as long as they were not paid for using frequent traveler miles or a similar program.

You can deduct trips between the airport or station and your hotel, and between the hotel and temporary work location.

Transportation

Baggage and ShippingAny baggage, samples, or materials sent between your regular place of business and temporary work location are deductible.

LODGING AND MEALS

LODGINGas long as it is necessary for you to sleep or rest to perform your duties.

is deductible,

LODGINGas long as it is necessary for you to sleep or rest to perform your duties.

is deductible,

For example, if you needed to drive 8 hours to a meeting, the lodging would be necessary.

MEALS Money spent for food, beverages, taxes and tips. They cannot be, in the words of the IRS:

“lavish or extravagant.”

“lavish or extravagant” This determination is made based on the facts and circumstances.

“lavish or extravagant” This determination is made based on the facts and circumstances.

A good rule of thumb is that if you would feel uncomfortable defending the expense in an audit then it is probably lavish and extravagant.

MEALFor

ExpensesYou can use either the actual cost, or standard meal allowance.

MEALSFor

ExpensesYou can use either the actual cost, or standard meal allowance.

The standard meal allowance for most locales in the US was $46 in 2012, and includes meals and incidental expenses such as tips given to porters, baggage carriers, and hotel staff.

MEALSFor

ExpensesYou can use either the actual cost, or standard meal allowance.

MEALSFor

ExpensesYou can use either the actual cost, or standard meal allowance.The standard meal allowance for most locales in the US was $46 in 2012, and includes meals and incidental expenses such as tips given to porters, baggage carriers, and hotel staff.

MEALSFor

ExpensesYou can use either the actual cost, or standard meal allowance.The standard meal allowance for most locales in the US was $46 in 2012, and includes meals and incidental expenses such as tips given to porters, baggage carriers, and hotel staff.

More Information on per diem rates is available here.

LodgingFor

ExpensesUse actual expenses, as there is no standard allowance available.

LodgingFor

ExpensesUse actual expenses, as there is no standard allowance available.However, if you wish to combine meals and lodging, there is a federal per diem rate. The rates differ according to locale and US rates can be found in IRS Publication 1542.

Entertainment

You must show that the main purpose of the expense was to conduct business, that business was conducted during that period, or future business was expected as a result of the meeting.

In order to deduct entertainment Expenses,

must be necessary and ordinary, The entertainment

and “associated” tests.

and it must meet the “directly related”

“directly related”Means that the entertainment takes place in a clear business setting, and the main purpose is to conduct business.

“associated”Means that the entertainment is associated with business, and takes place directly before or after a substantial business discussion.

NO double dippingis allowed And if you deduct the cost of meals

as a meal expense, you cannot deduct it again as entertainment.

Travel Deductions For Your Employees

Travel Deductions Employees are reimbursed for business related travel on either an accountable plan, or no accountable plan.

accountable PlanUnder an

Your employees account for expenses through receipts and documentation within 60 days.

accountable PlanUnder an

Your employees account for expenses through receipts and documentation within 60 days. You must reimburse them within 120 days after the expenses were paid or incurred, which constitutes a “reasonable period of time” to the IRS.

Non-accountable PlanUnder a

The employer reports the reimbursements as wages on Form W-2. Any combined payment of wages and reimbursement must be specified.

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