Travel - Business/Employment Meals & Lodging
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Description/Scope: Travel away from home overnight and temporary job assignments
Purpose
Who This Applies to: Self-employed, Employees, etc.
When to Perform
Special Circumstances
Why This Is Important
General Benefits 7 Objectives
You may be able to deduct the ordinary and necessary business-related expenses you have for:
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MEALS |
Meals can be deducted under two separate and distinct
conditions:
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An ordinary expense is one that is common and accepted in your field of trade, business, or profession. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be indispensable to be considered necessary.
This publication explains what expenses are deductible, how to report them on your return, what records you need to prove your expenses, and how to treat any expense reimbursements you may receive.
Who should use this publication. This publication deals with expenses of employees and sole proprietors. Other businesses (such as partnerships, corporations, and trusts) and employers who reimburse their employees for business expenses should refer to their tax form instructions and chapter 16 of Publication 535, Business Expenses, for information on deducting travel, entertainment, and transportation expenses.
Volunteers. If you perform services as a volunteer worker for a qualified charity, you may be able to deduct some of your costs as a charitable contribution. See Out-of-Pocket Expenses in Giving Services in Publication 526, Charitable Contributions, for information on the expenses you can deduct.
Expenses fully reimbursed. You will not need to read this publication if all of the following are true.
If you meet these four conditions, there is no need to show the expenses or the reimbursements on your return. If you would like more information on reimbursements and accounting to your employer, see chapter 6.
If you do not meet all of these conditions, you generally must complete Form 2106 or 2106-EZ and itemize your deductions on Schedule A (Form 1040) to claim your expenses. See chapter 6.
If you meet these conditions and your employer included reimbursements on your Form W-2
in error, ask your employer for a corrected Form W-2.
Vehicle provided by employer. If an employer-provided vehicle was available for your use,
you received a fringe benefit. Generally, your employer must include the value of the use
or availability in your income as pay. However, there are exceptions if the use of the
vehicle qualifies as a working condition fringe benefit (such as the use of a qualified
nonpersonal use vehicle). Employers should see chapter 4 of Publication 535 for
information on fringe benefits.
A working condition fringe benefit is any property or service provided to you by your employer for which you could deduct the cost as an employee business expense if you had paid for it. A qualified nonpersonal use vehicle is one that is not likely to be used more than minimally for personal purposes because of its design.
For information on how to report your car expenses that your employer did not provide or reimburse you for (such as when you pay for gas and maintenance for a car your employer provides), see Vehicle Provided by Your Employer
Out of Town Business Travel
The purpose of this letter is to advise you of the rules for deducting the cost of your out-of-town business travel within the U.S. These rules only apply if the business conducted out of town reasonably requires an overnight stay.
The actual costs of travel (e.g., plane fare, cab to airport, etc.) are deductible for out of town business trips. Significantly, however, you are also allowed to deduct the cost of meals and lodging. Your meals are deductible even if they are "personal," i.e., not connected with business, although, as with all deductible meals, only 50% of the cost is allowed (55% for long-haul truckers, certain airline, train and bus employees, and certain merchant mariners). Additionally, no deduction will be allowed for meals or lodging to the extent the expense is "lavish or extravagant." Although this term is not defined in the tax rules, it has been interpreted to mean "unreasonable."
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Primarily For Business |
| You can deduct all of your travel expenses if the trip was entirely business related. If your trip was primarily for personal reasons, the entire cost of the trip is a nondeductible personal expense. However, you can deduct any expenses you have while on your destination that are directly related to business. |
Personal entertainment costs on the trip aren't deductible, but business-related costs such as for dry-cleaning, phone calls, and computer rentals are.
Some allocations may be required if the trip is a combined business/pleasure trip, for example, if you fly to a location for five days of business meetings and stay on for an additional period of vacation. Only the cost of meals, lodging, etc., for the business days are deductible -- not for the personal vacation days.
On the other hand, with respect to the cost of the travel itself (plane fare, etc.), if
the trip is "primarily" business, it can be deducted in its entirety and no
allocation is required. Conversely, if the trip is primarily personal, none of the travel
costs are deductible. An important factor in determining if the trip is primarily business
or personal is the amount of time spent on each, although this isn't the sole factor.
If the trip doesn't involve the actual conduct of business but is for the purpose of
attending a convention, seminar, etc., IRS checks the nature of the meetings carefully to
make sure they are not vacations in disguise. Be careful to save all material helpful in
establishing the business or professional nature of this travel.
The rules on deducting the costs for your spouse if she accompanies you on a business
trip are very restrictive. No deduction is allowed unless she's an employee of yours or
your company and her travel is also for a business purpose.
Please call if you wish to discuss this matter further or have any questions.
Exceptions to the 50%Limit: Generally, business-related meal and entertainment expenses are subject to the 50%
limit. Figure A can help you determine if the 50% limit applies to you. Expenses not subject to 50%limit.Your
meal or entertainment expense is not subject to the 50% limit if the expense meets one of the following exceptions.
1 – Employee's reimbursed expenses. If you are an employee, you are not subject to the 50% limit on expenses for which your employer reimburses you under an account-able plan.
2 – Self-employed. If you are self-employed, your deductible meal and entertainment expenses are not subject to the 50% limit if all three of the following requirements are met.
1) You have these expenses as an independent contractor.
2) Your customer or client reimburses you or gives you an allowance for these expenses in connection with services you perform.
3) You provide adequate records of these expenses to your customer or client. In this case, your client or customer is subject to the 50% limit on the expenses.
3 – Advertising expenses. You are not subject to the 50% limit if you provide meals, entertainment, or recreational facilities to the
general public as a means of advertising or promoting goodwill in the community. For ex-ample, the expense of sponsoring a television
or radio show is deductible, as is the expense of distributing free food and beverages to the general public.
4 – Sale of meals or entertainment. You are not subject to the 50% limit if you actually sell meals, entertainment, goods and ser-vices,
or use of facilities to the public. For example, if you run a nightclub, your expense for the entertainment you furnish to your
customers, such as a floor show, is a business expense.
5 – Charitable sports event. You are not subject to the 50% limit if you pay for a package deal that includes a ticket to a qualified
charitable sports event. For the conditions the sports event must meet, see Ex-ception for events that benefit charitable
organizations under Entertainment tickets, earlier.
Individuals subject to "hours of service " limits.You can deduct a higher percentage of your meal expenses if the meals take place
during or incident to any period subject to the Department of Transportation's "hours of service" limits. The percentage is 60% for
2000, and it gradually increases to 80% by the year 2008. Individuals subject to the Department of Transportation's "hours of service" limits include the following persons.
1) Certain air transportation workers (such as pilots, crew, dispatchers, mechanics, and control tower operators) who are
under Federal Aviation Administration regulations.
2) Interstate truck operators and bus drivers who are under Department of Transportation regulations.
3) Certain railroad employees (such as engineers, conductors, train crews, dispatchers, and control operations personnel)
who are under Federal Railroad Administration regulations.
4) Certain merchant mariners who are under Coast Guard regulations.
Temporary Job Assignments
You recently inquired about the tax consequences of your temporary job assignment away from home.
First of all, for tax purposes, the most important question relates to the length of your stay away from home. If you are away from home for more than one year, the assignment is classified as "indefinite" (as opposed to "temporary"), and you won't be able to deduct any of your personal living expenses. On the other hand, if you are actually away for one year or less and it was realistic to expect that you would be away for one year or less, then your assignment can qualify as "temporary" (unless particular facts and circumstances indicate otherwise).
If your assignment qualifies as temporary you can deduct the personal living costs you incur while away from home. Significantly, this includes the costs of lodging and meals as long as they are not lavish or extravagant (although meals are subject to the regular rules for deductible meals which generally only allow half of their cost to be deductible). Other incidental living expenses, such as for laundry or dry cleaning, are also deductible. You can deduct the costs of trips "home", e.g., on weekends, but only up to the amount you would have spent on meals and lodging at your temporary work location had you not gone home.
These rules allow for substantial deductions in many cases, and you must be careful to meet the substantiation requirements. That is, save all receipts and documentation regarding your deductible expenses. Keep a logbook showing your costs while away from home on your temporary job assignment.
Additionally, in the event IRS seeks to make the case that your assignment was "indefinite," it's advisable to establish a record showing it was reasonable to expect the assignment would last one year or less. For example, if applicable, save any memos or documentation from your employer regarding the nature of your assignment. An explicit statement in writing from your employer to the effect that the assignment isn't expected to exceed one year could prove helpful.
Please call me if you have any questions or would like to discuss this matter further.
This entire site is for educational or informational purposes only. You are not to use the forms, concepts, strategies, or knowledge without assistance from a professional. The author, the corporation, the ISP, Bob Parrish CPA, Bob Parrish CPA, P.C. or other parties related to those or this site do not guarantee or warrantee in any manner the suitability, usefulness, accuracy, timeliness, or results of any portions of this site, nor the links contained in this site which link to other areas. At times, information is taken from other sources and is believed to be accurate, but no verification or confirmation is performed. Furthermore, if any federal or state law invalidates a portion of this disclaimer, the other portions still apply. In addition, any allegations or actions are restricted to arbitration only and must be arbitrated by the Better Business Bureau in Sarasota Florida. Reading of these pages constitutes complete acceptance and agreement with all disclaimer provisions on all pages of this site. .......
Tuesday, November 02, 2004 12:51 PM
Law (commentary and citation)
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This is about Activity Based Taxplanning - maximizing deductions, minimizing cash outlay and maximizing the amount of cash retained and the net worth.
Tax is a subject that many view in order to cut costs. Taxes are a cost just as any other cost. It happens this cost is somewhat intangible and is defined by legislation without a tangible item to view and control. The money is spent and the control of the expenditure is more appropriately administered by someone trained in the law.
This is about Activity Based Costing - methods to cut costs, management accounting, management information systems, decision support systems - in general about being a manager.
From Banking Records
From Customer Records
From Signed Documents
From Your Other Business, or Financial Records
From Corporation or Organization Records (meetings, etc.)
Assistance - What to do
Forms - Checklists - Etc.
Financial Statement Presentation
Notes to Financial Statements
How to Make Entries
What Kind of Records to Keep
Bookkeeping Methods - Cash, Accrual and Other
How the Business Entity Affects the Recording
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Corporation - C & S
Partnerships - General, Limited, Limited Liability Company, Registered Limited Liability Partnership or Company
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Tax Exempt
Alerts & Dangers - Risks
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travel_meals_lodging.htm
