In this article concerning recordkeeping of business expenses, we examine the costs associated with business travel. Particularly for business owners, travel costs can be substantial expenses in the course of a year’s business operations.
Out of Town Travel
Frequently, out-of-town travel is required, particularly for certain types of businesses. Some require completion of continuing education credits through various regional or national conferences. Some businesses have legitimate travel needs to promote their products or services at conventions or expositions held in various locations. Some businesses must travel overnight to complete a job for a customer perhaps in another state. Some business executives must fly around the country to meet with clients or to make presentations to prospective customers.
Many reasons abound for business travel. How does a bookkeeper track business-related travel costs in its bookkeeping system to ensure legitimate tax savings?
Per the IRS regulations, business travel, though legitimate, can also be misunderstood or abused. It is wise for business owners and bookkeepers to understand clearly what is, or is not, deductible travel costs.
For overnight business trips, all costs associated with lodging, transportation, incidentals such as parking or tolls, and meals are deductible. Key points to remember:
- All airfare, parking, tolls, tips, rental car expense, cabs, and hotel costs for business are fully deductible at the amount incurred.
- All vehicle miles on a personal vehicle driven for business are deductible either at the standard mileage rate or by using actual expenses. (Personal vehicle business use will be address in Article Three of this series.)
- All meals can be deducted at 50% (typically) of the meal cost, or at the per diem rate allowed.
- Businesses can use the high-low per diem rates listed in IRS Publication 1542, Per Diem Rates, or they can choose the Standard Meal Allowance for the number of days away for business. The rules state that the meal allowance for the day of travel to or from must be prorated, and all full days away on business are allowed a full day’s meal allowance.
- Let’s consider an example. Assume that John is an executive with an advertising agency and must fly from New York to a large potential client in Nashville, TN to make a presentation over two days to various company managers. John’s airfare, rental car expenses, hotel costs, and incidentals such as tips and parking, are fully deductible business travel costs. His meals can be deducted at actual costs, with John preserving his receipts for proof, or by using either the high-low per diem rate or the standard meal allowance for two full days and two travel days at 75% of the regular meal allowance.
- Certain industries, such as OTR Truckers, can generally receive a higher deductible percentage of their meals.
- To relieve the burden of keeping all meal receipts for meals under $75, the IRS allows business owners to choose between the actual costs or the per diem rates to calculate the meal deduction. If the business owner is not aware of this option, it is the bookkeeper’s responsibility to make them aware of it.
- IRS Publication give the per diem rates, covering most every major city and metropolis around the world for business travel. The Publication breaks down the individual location traveled to and shows the actual per diem rate to use for that location. It also allows for a Standard Meal Allowance instead, for simplification purposes.
- This publication lists the lodging and meal amounts. However, it also gives instruction on separating the meals and lodging costs. The reason for this is because you MUST use actual for the lodging, but CAN use the per diem for the meals.
- If you reimburse employees for business travel costs, you can reimburse them at the per diem rate for both lodging and meals, but the business owner must use actual for lodging and can use per diem for meals.
Business travel costs can be tricky to understand. Bookkeeping and tax professionals help business owners sort through the maze to ensure that these are not overlooked.