TL;DR: Maximize your tax savings by understanding and accurately documenting travel and entertainment expenses. Utilize tools like MERCURY to streamline expense management, enhance efficiency, and maintain complete records.
Maximizing Tax Benefits on Travel and Entertainment Expenses
In the business world, understanding and managing travel and entertainment expenses can significantly impact your tax obligations and overall financial health. Often, businesses overlook deductions they are entitled to, leading to overpayment of taxes. Here's a guide to help navigate these expenses, ensuring you capitalize on all available deductions while maintaining compliance with IRS requirements.
Travel Expenses: Local and Away-from-Home
Tax laws allow deductions on two primary types of travel expenses: local and "away from home."
Local Travel Expenses
You can deduct costs incurred for local business transportation, including public transport, rental cars, or personal vehicle use, as long as they're for business purposes. However, meals and incidentals aren't deductible as travel expenses but can be considered under entertainment expenses if specific conditions are met.
Away-from-Home Travel Expenses
While traveling away from home, you can deduct 50% of meal costs and the full cost of lodging and transportation, provided the trip is primarily for business purposes.
Examples of Deductible Away-from-Home Expenses:
- Meals (50%) and lodging
- Cleaning and pressing clothes
- Telephone, fax, and modem usage
- Secretarial services
- Transportation between job sites or to/from hotels
- Airfare, bus or rail fare, and baggage handling
Meal and Entertainment Expenses
Recent tax reforms have impacted deductions for meal and entertainment expenses. Generally, entertainment expenses post-2017 aren't deductible unless they meet specific exceptions. However, costs incurred for employee social events remain fully deductible.
To qualify as deductible, meal costs must be "ordinary and necessary," not "lavish or extravagant," and directly related to business activities.
Recordkeeping and Substantiation
Proper documentation is vital to substantiate travel, entertainment, and local transportation expenses. Key elements to record include:
- The amount spent
- The date and place of the activity
- The business purpose
- The business relationship with those entertained or gifted
Failure to maintain these records is a common reason for IRS disallowance of deductions.
MERCURY's Role in Streamlining Expense Management
Save Time on Expense Reports
MERCURY simplifies the management of daily expenses. With our Expenses dashboard, you can access, validate, and process employee expenditure without needing specialized software.
Prevent Lost Receipts
Receipts can be directly uploaded into expense records. Employees can easily attach receipt copies, even on the go via mobile devices, ensuring a complete record of all expenses.
Manage Team Expenses Efficiently
Gain a comprehensive view of team expenditures, allowing managers to monitor costs, validate expenses, and ensure budgets are respected. Accountants can seamlessly integrate these records into financial systems, facilitating payment processing and invoicing.
By leveraging MERCURY's tools, businesses can enhance their expense management processes, ensuring compliance and maximizing financial efficiency.
