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.
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.
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.
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.
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
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.
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”.
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 2011 is 51 cents per mile for January 1st through June 30th and 55.5 cents per mile for July 1st through December 31st. The rate will remain at 55.5 cents per mile for 2012.