How to Deduct Your Travel Expenses

Travel expenses are a favorite deduction of many clients, because they love to travel and especially enjoy it when the IRS is subsidizing part of the expense. In order to deduct travel expenses, however, you must show that the expense has a business purpose and is ordinary and necessary to the business.

Travel expenses that have a business purpose include:

- Meeting customers/prospects/vendors residing in a different location;
- Searching for investment property;
- Meeting with business partners, both current and prospective; and
- Holding annual shareholder meetings (usually held in conjunction with an annual board meeting).

The phrase “ordinary and necessary” generally is defined to mean, “in the ordinary course of business” and that “the expense will contribute to the success of the business.”

If a taxpayer travels to a destination and while at such destination engages in both business and personal activities, traveling expenses to and from the destination are deductible only if the trip is related primarily to the taxpayer’s trade or business.

If the trip is primarily personal in nature, the traveling expenses to and from the destination are not deductible even though the taxpayer engages in business activities while at such destination. Expenses while at the destination which are directly related to the taxpayer’s trade or business are deductible even though the traveling expenses to and from the destination are not deductible.

Whether a trip is related primarily to the business or is personal depends on the facts and circumstances in each case. The amount of time during the period of the trip that is spent on personal activity compared to the amount of time spent on business is an important factor in determining the deductibility of the travel expense. Generally, if business is conducted more than 50% of the time in an eight-hour business day, the travel expense is deductible.

Travel expenses incurred on behalf of a spouse, dependent or other individual accompanying the taxpayer are not deductible. However, if the spouse, dependent or other individual is an employee of the taxpayer or there is a bona fide business purpose, then the travel expense is deductible.

Travel expenses involving a cruise ship typically are not deductible. However, they can be deductible if you are attending a convention on a cruise ship and you can show that attendance benefits your trade or business. No deductions for cruise ship expenses are allowed for meetings related to personal investments, political causes or other purposes.

There are additional restrictions relating to cruise ship travel. For example, there is a $2,000 annual limit on cruise conventions and you must attach a written statement to your tax return that includes certain facts about the convention.

Normally, expenses require simple documentation such as a receipt. However, travel expenses require additional documentation. If the IRS finds the taxpayer does not have sufficient documentation, the expense will not be deductible. The taxpayer must document the amount, time, place and business purpose of the travel expense.

Sufficient documentation of a business expense includes receipts, cancelled checks or bills. Although a contemporaneous log is not required, we normally recommend that our clients keep an itinerary of the business trip listing all business activities as documentation of the travel expense. The log should list all elements of the expense (e.g., amount, time, place and purpose) as this has high credibility with the IRS. Documentary evidence, such as receipts or paid bills, is not generally required for expenses that are less than $75. However, the IRS has ruled that all lodging expenses must be documented.

The taxpayer may deduct a standard allowance as set by the federal government. This is called a per diem deduction. In lieu of receipts, taxpayer will deduct the per diem rates. Per Diem travel expense deductions are not allowed for owners.

Good news for those who hate keeping track of all of those pesky receipts when they travel. The IRS will allow you to deduct your meals and incidental expenses for travel away from home even without receipts. This is their Per Diem Allowance program.

The way it works is that the IRS has a table indicating the amount of deduction you can take on a daily basis for meals and incidentals while traveling away from home. If you choose to use this flat, per diem amount, you do not have to keep track of the receipts for these expenses. If you are not an owner in the business, you can even use the per diem method for travel and lodging. Owners can only use the per diem method for meals and incidentals.

Of course, per diem allowances, like deductions for actual expenses, may be used only if the time, place and business purpose of the travel are substantiated by adequate records or other evidence.

5 Uses Of Travel Expense Management Software

In today’s competitive era, a lot of organizations still manage their travel expenses in a very unorganized manner. The traditional way wastes employee time and productivity and increases the stress of Account payable and Finance team in managing the process manually. To gain competitive advantage, organizations need to move to travel expense management platform that integrates travelers, approvers, travel desks, travel agents, accounts payable and finance on one portal to reduce miscommunication and streamline the process. Unnecessary trips and wasteful cancellations are decreased, travel is only with authorized vendors and travelers function within the recommended procedures and systems. This saves both time and money. Below mentioned are few benefits of an efficient Travel Expense Management Software:

Structured Travel Policy
Earlier when accounting for travel expenses was done manually, it was difficult to keep track of all the expenses and cost incurred. With the travel expense management software, the travel policies will be very clear and erroneous payments can be highlighted. Common travel expenses including hotel and food ought to be written down clearly. This helps in preventing issues in the future.

Expense Visibility
The finance and accounts payable team can get a clear visibility on the spend made. They will have all the related information available in the system with details of the same. They can easily know which department is spending how much and can put budget control wherever needed.

Efficient Processes
Entering expenses manually into a spreadsheet can be really tedious and can tend to be inaccurate. It becomes difficult for the accounts payable and finance team as well if you have several hundred employees in an organization. This is where the travel expense management software comes into the picture. The software allows employees to report their expenses in the system which automatically follows the workflow and goes for approval. Post approval it goes to the relevant department for authenticating and processing the payment. The entire process is seamless, automated and quick for employees and internal departments.

On-Time Employee Reimbursement
If you take too much time to reimburse your employee, it will lead to growing resentment. It could also lead to employees hesitant to go on business trips and maybe even flat-out refuse, which would ultimately affect the business. The software allows the employees to report their expenses on the go and it immediately goes for approval and payment. The entire process is quick and automated which saves a lot of time and helps to reimburse employee expenses on or before time.

Employee Travel Expense Trends
With a spreadsheet, it is difficult to say if a particular employee’s expenditure is atypical to the normal pattern. The software helps to capture data and analyse the trend based on historical data. Management can run multiple reports and get analytics to help them make business decisions. For ex. It is easy to look up different trips and find out whether inflation is bringing up the expenses or if the employee is skirting along the edge of allowed expenses. Both the Travel Expense Management Software and the Procure to Pay Software helps bring financial control in the organization saving a lot of cost and time.

Cheapest Airfare- How to Have a Low Travel Expenses

Traveling is a good way to de-stress, to bond with your spouse, family or friends. But of course traveling is always accompanied by a lot of expenses. Some people keep working and saving to be able to travel and cover all the expenses they need. When you travel, most of the expenses are allocated on airfare. But if you know how to find the cheapest airfare you can reduce your travel costs and can have a low travel expenses. Here are some tips to find the cheapest airfare:

Avoid peak season. Traveling during peak season is usually expensive not only on airfare but also on hotels, car rentals etc. Traveling on off-peak season will allow you to have a low travel expenses. You can also enjoy the travel and the vacation because there are fewer crowds. There are a lot of vacancies in hotels at a lower price and usually airfares are lower on off-peak season. You can have a low travel expenses and save thousands of dollars.

Check airfare tickets online. Another way to have a low travel expenses is to browse the web for airfare great deals. You can find great airfare discounts if you shop around and check different travel agencies online. You can also visit individual airline websites and compare prices. Subscribe to airline email alerts to track last minute sales and special discounts offered by different airlines. Be patient to shop around and compare prices, do not just rely on tickets on sale; they are not always the lowest price that you can get. Check also if the cheapest tickets include taxes and fees to be sure you can save a lot, get the best deals and will have a low travel expenses.

Travel Packages. If you check and compare prices on the available travel packages, you may spot good packages that will allow you to have a low travel expenses. If you keep looking and plan in advance you may find packages with hotel accommodation, car rental and airfare at the lowest rates.

Travel time and destination flexibility. If you are flexible enough to fly at any time and date at any airport in your area then you can enjoy a lot of discounts and can have a low travel expenses. If you insist on fix dates and destination, you will have a hard time reducing your travel costs; you may even end up paying more.

Planning in advance each time you travel will give you the advantage to have a low travel expenses. You don’t have to spend a fortune to travel and enjoy.

Work Related Expenses – Travel Expenses

Common travel expenses you may be able to claim include air, bus, train & taxi fares. If you use a road vehicle designed to carry a load of one tonne or more, or nine or more passengers, use a motor cycles, incur bridge/road tolls, parking, car hire fees, meal expenses or accommodation expenses whilst away overnight for work then you have incurred travel expenses.

You cannot claim a deduction for costs associated with travel to and from work however if the travel is from one job directly to a second job you can claim a deduction for costs incurred for that leg of the travel. Travel from the second job to home is not deductible.

You can claim a deduction for costs incurred travelling from your usual place of work to another location for the same employer, for example to a clients premises while still on duty then back to your usual work place or directly home. In this case you can claim the cost of travel to another work location and the cost of returning to your usual workplace or the cost of going straight home. Travel to and from locations for the purpose of study is not covered here as these are claimed under ‘Self Education Expenses’.

Generally parking fees and tolls can only be claimed where there is also a deduction available for the travelling expense, there are a few exceptions to this rule and you can view these on the ATO website.

The treatment of overnight travel for work is varied depending on an individual’s circumstances.

For an employee, this is where they undertake the travel for an activity which is directly related to their income earning activities as an employee. For a business person (sole trader etc) the expense must have been necessarily incurred for the purpose of producing assessable income.

For travel within Australia, no written evidence and no travel records are required if the employee receives a travel allowance and claims no more than the amount considered reasonable by the Tax Office.

If the employee is travelling for 6 nights or more a travel diary or similar must be maintained for travel within Australia or overseas

If no travel allowance is received, or the claim is more than the amount considered reasonable by the Tax Office all travel expenses claimed must be supported by written records. It is always advisable to keep a diary if travelling overseas, or if you are away for any period of time. Records, such as the date and time of meetings, business cards of people attending the meetings etc always help to substantiate any travel claim.

Les Coulcher is the principal owner of Coulcher’s Personal Accounting [http://coulcher.com.au] & Taxation Services, the Premier accounting firm in Camden and he believes his staff offer the best personal accounting and taxation services in the region. The business consists of five qualified accountants and support staff.

“We pride ourselves on providing a personal service which includes home visits as necessary and bookkeeping services at the client’s premises. Apart from giving the client the most appropriate advice regarding their taxation affairs we also provide support through the provision of financial planning, bank and business loans and a supportive shoulder to lean on in tough times. We are all good listeners, something that seems to be missing in most professions at the moment.”

Travel Expense Reports

Travel expense reports are the records of the travel and expense (T&E) spending of the employees of business organizations. Indeed, travel and expense spending is the third largest but controllable cost after salaries of employees and data-processing costs of an organization. Every business traveler has to submit expense report to the Accounts Department of his company for claiming reimbursement. Almost all organizations, whether business or service, have their own formats of travel expense reports to be filled out and submitted by the employees at the end of their trips. Along with the submission of the report, an employee has to submit the receipts and vouchers of his expenses.

However, some companies may not insist on the receipts if the total claim is less than certain amount. If the employees meet the expenses by credit card, the statement will serve as an evidence for claiming that amount from the employer. If the employee submits the travel expense report online, then he can attach electronic receipts. Generally for frequent business travelers, it is useful to submit T&E reports online to save time. Nowadays, companies are using expense report software to enrich the process of submission, approval and reimbursement by reducing the costs involved at the same time.

The travel expense report should include the details about the full name of the employee, his designation and level, purpose, dates and locations of travel, list of all the expenses, advance amounts taken by the employee, if any, attachments of all the vouchers and receipts, preferable mode of payment to the employee and signatures of both the traveler and the authorized person who has given approval for the travel. While mentioning the expenses, the employee has to clearly segregate the credit card payments and cash payments. Once the report has been submitted with the concerned department for approval, it should be reviewed, and if everything is as per the rules, reimbursement should be sanctioned. Then the payroll department would reimburse the amount to the employee.

How This Woodland Is Telling You That You Need Travel Expense Management Software

Woodland in autumn. A peaceful afternoon. Sun finds its way through the canopy onto the floor. One glance tells you everything there is to know.

Except that it doesn’t. All you’re getting from a single glance at our picture is an impression. Sure, you can tell it’s a picture of trees, but how many are there? What species? How old? How many to the hectare? Are they healthy?

See? With every question I ask about this simple picture, you realise you know a little bit less than you thought. In the end, you’re down to the first three words in this post. It’s woodland in autumn.

And so it is with travel expenses. You know they exist because you keep authorising business travel. You may even know what you spent last year, or for the year to date. But is your business getting good value for that spend?

Interrogate the data

The only way to answer that with anything like confidence is to interrogate the data and tease out the information that’s lurking in there. That sounds like a complex exercise, and no doubt it is – if you’re starting from scratch with a pile of receipts and expense claims with the travel data rolled up inside everything else.

And that’s why the dashboard system of oversight built into so much modern software is so valuable. The clever developers behind the software powering your favourite app have set it up to do the hard work for you, and to tell you instantly where there are peaks and troughs in whatever system it is that’s being monitored. If it’s staff absence, you may find that there are lots of people who don’t make it on Monday morning for example.

And if it’s travel, you may find that three employees who went on the sales trip to the major client travelled together but have all claimed mileage as if they went alone. Sadly, it happens. Even if it doesn’t in your business, you may find better ways of accomplishing the task, like getting it done without spending quite so much on travel. For example, is the cheaper flight from a different airport actually cheaper in real terms, once you’ve factored in the mileage for getting to the airport and the overnight hotel stay because of awkward flight times? And how much time does your business waste on travel in the first place? What’s the hourly cost of employing whoever is going on the business trip in the overpriced scenario I’ve just outlined? Could their time be better spent? In short, is there a better way? Travel and expense management software will help you to find out.

Claim and pay more accurately

Good travel and expense management software sets down the rules, and makes it easier and faster for employees to claim in an accurate and timely manner, which makes approving expenses simpler and faster too, leaving you more time to get on with generating revenue – and isn’t that what you’re in business for?

By adopting the use of travel and expense management software you’re making the best use of available tools, empowering you to be more effective by interrogating data automatically, turning up gems of information from the impenetrable mass before you.

As my father was always prone to say: “You can’t see the wood for the trees.” I guess what he meant was that there was so much detail it was impossible to get a clear view of what really mattered in the scene.

Why Should We Use a Travel Expense Report Template?

There are things which we can control in our lives while we are powerless to foresee the outcome of certain things beforehand. These aspects of life will never be able to give us the perfect answers or results, which we need to be happy. They may even give us the worst result, thereby plunging into the depths of sadness. Such uncertain aspects can also be controlled to some extent, enabling us to get at least a little amount of goodness from them. This being the case, the world of business has never been able to give us the expected results all the time and some have even faced a drastic change in their financial status from prince to becoming a pauper at the need. This will happen to those who do not use the tools of making sure that they give them a little control over things. One of the tools will be the use of a travel expense report template, among the employees of the concern. These forms will help the company in understanding the details about the expected and the actual expenses incurred, for every specific period, in terms of travel arrangements and allowances.

By making sure that the excessive and unnecessary expenses incurred from every department of the company is brought down, the total funds with the organisation can be saved and may be used effectively for some other important and necessary needs of the firm. Hence, by monitoring the expenses of the travel arrangement for employees and their business cargo, companies can benefit greatly indeed. Since travel and cargo shipment are mainly under the control of other agencies with which the company has signed a contract, these expenses will need to be monitored carefully to detect any fraudulent activities on their part, which might lead to unwanted depletion of funds from our reserves.

A travel expense report template will contain fields by which we can fill the details of the travel expenses can be filled in properly and thereby the expenses incurred for the employee can be made known to the company. The funds used for such expenses can be obtained from the company before leaving or can be obtained from them after returning from the journey. However, both these requisitions should be backed up by the travel expense report made from the templates available with them. Hence, the use of a good travel expense report template will not only benefit the company but also the employee as well to a great extent.

Deductible Business Travel Expenses Allowed by the IRS

Figuring out which business travel expenses are tax-deductible according to IRS regulations can be tricky, especially if you are running on your own business and you don’t want to visit your accountant with every little question. What gets even trickier is trying to decipher whether travel expenses are deductible if you have combined a business trip with some leisure activities.

This article outlines the basic travel expenses that you can deduct as a legitimate business expense. But before diving in, I need to give you a definition, and that is the definition of a business day.

What Does the IRS Consider a Business Day?
Any of these qualify as a business day:

- a day on which you travel getting to and from your business destination
- a day when you spend at least 4 hours on business related activities
- a day when you have a pre-scheduled appointment

The first two are relatively simple to understand. Just be sure you have documentation to back up your travel, such as ticket stubs. On days when you are spending at least 4 hours on business activities, your activity log serves as documentation.

On days when you have a pre-scheduled appointment, you have to be able to prove that you actually attended the appointment. How do you prove it? If you met someone for a meal and picked up the tab, the receipt from the meal serves as proof. Otherwise, you’ll need to print out emails from before and after the trip to the person or people you met. The email from before your trips proves that the meeting was pre-scheduled. The email sent after the meeting (for instance, thanking them for meeting you) proves that you were at the meeting.

Tax-Deductible Business Travel Expenses
Now that we’ve gotten that definition taken care of, let’s get down to the list of items you can deduct from your business travel. The related IRS regulation or publication is listed after each category.

Business Meals
Half the cost of all your meals during actual business days can be deducted. This is true whether you met another person for a meal and picked up the tab, or you ate alone. (1.162-2(a))

Transportation
This usually makes up a bulk of your business travel expenses. These expenses include rental cars, airline tickets, airport shuttles, taxis, and trains. (IRS Publication 463)

Laundry
Any dry-cleaning or laundry expenses associated with clothes that you wore on the business part of the trip can be deducted as a legitimate travel expense. (Internal Revenue Ruling 63-145 and 1963-2 C.B. 86)

Lodging
Any lodging costs, such as your hotel bill, are travel expenses that can be legally deducted. (IRS Publication 463)

Tips, Gratuities, Phone Calls
If you had to tip a cabbie, a porter, or a maid, then you can include these expenses as a part of your travel expenses. These should be associated with business days. Business related phone calls, whether local or long distance, may also be deducted. (1.162-2(a) and IRS Publication 463)

Does that sound simple enough? As always, remember that the devil is in the details, or in this case, the documentation. This article outlines all the legal business travel expenses you can deduct, but you really can only deduct these if they are properly documented. So deduct away as long as your document!