Tag Archives: business travel

Employee Travel: Preventing Tax Problems

employee travel, overnight, travel, business travel, Employee travel can signal tax problems. It can be a headache for the employer. It can be a headache for the employee to if the tax regulations are not followed. It is common practice for companies to send employees on business trips. If the rules are followed, the cost of employee travel will be fully deductible to the employer. The exception are meals, which are only 50% deductible, and are a tax-free reimbursement to the employee. In addition, the reimbursement is not subject to FICA or payroll withholding.

On the other hand, if the rules are not followed, the expenses are still deductible by the employer. However, the reimbursement must be added to the employee’s taxable wages. Those wages are subject to both FICA and payroll withholding.

Ordinary and Necessary Business Expenses

An employer is able to deduct ordinary and necessary business expenses. These expenses include employee travel and lodging expenses that are job-related. The expenses cannot be defined as lavish or extravagant by the IRS. Otherwise they are known as Working Condition Benefits or fringe benefit. Any such item that is deductible by the employer is not included in the employee’s salary. In addition, an advance or reimbursement made to an employee, under an Accountable Plan, which requires the employee to adequately account for the expenses and return any excess advances, is deductible by the employer. This type of plan is not subject to FICA or income tax withholding.

Reimbursements not made under an Accountable Plan are fully taxable to the employee. The only way for the employee to deduct the expenses is as a miscellaneous itemized deduction on his or her Form 1040. To do that, the employee must itemize the deductions on the Schedule A, instead of taking the standard deduction. The employee business expense category on Schedule A is subject to a 2% of AGI nondeductible threshold (Adjusted Gross Income). Often, this results in the employee deducting only a portion of the expenses or none of the expense at all.

With the exception noted below, to deduct the cost of lodging and meals, the taxpayer must be away from home overnight. Overnight is defined by the IRS as any trip that requires sleep or rest to enable the taxpayer to continue working.

Away-From-Home Rule Exception

Under an exception to the Away-From-Home Rule, the cost of local lodging is deductible. This deduction is restricted to the following:

  1. The lodging is necessary for the individual to participate fully in
  2. For the purpose for a bona fide business meeting, conference, training activity, or other business function.
  3. For the duration cannot exceed five calendar days, and
  4. Does not happen more frequently than once per calendar quarter.

For an employee, the employer must require:

  1. The employee to remain at the activity or function overnight
  2. The lodging must not be lavish or extravagant, and
  3. There can be no significant element of personal pleasure, recreation, or benefit.

Employee Travel for a Temporary Living Arrangement

A taxpayer’s home, for purposes of determining if he or she is away from home and can deduct lodging and meals, is generally where the taxpayer normally lives and works. However, that fact is sometimes difficult to determine, in which case the IRS has numerous special rules that apply.
An away-from-home assignment, at a single location, lasting for one year or less, is considered temporary, and the travel expenses are deductible. If the assignment is longer, there is a good chance the expenses will not be deductible based upon some complex rules.

Do You Need More Information?

The rules for the tax treatment of travel expenses and temporary away-from-home assignments can be complex. Please give Alex Franch, BS EA  at this office a call at 781-849-7200 for further details or assistance.

 

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Tax Tips for the Well-traveled Businessperson

Tax Tips for the Well-traveled Businessperson
Article Highlights:
Acceptable Records
Meals
Spouse Expenses
Food and lodging expenses are generally deductible when away from home for business purposes. This may be particularly beneficial for self-employed individuals who travel extensively. Like everything involving taxes, there are rules to follow.
The IRS requires that lodging expenses (and other expenses of $75 or more) be substantiated by records or other evidence. Acceptable records include diaries, logs, receipts, paid bills and expense reports. The records should disclose the amount, date, place and essential character of each expense. Diaries and logs should be notated close to the time of the expense; newly created diary, log and calendar entries made months (or years) later when the IRS requests documentation in an audit are less likely to pass muster than those that were prepared when the travel and expenses occurred.
Keep good records of your travel expenses.
Document the business purpose and the expected business benefit.
Retain your travel itinerary to document the business activity while away.
Travel expenses are deductible only if the individual is away from his or her “tax home” for more than one business day. “Tax home” usually means the individual’s regular place of business.
Meal expenses are only deductible if the trip is overnight or long enough that there is a need to stop for sleep or rest in order to properly perform one’s duties. The amount of the meal expenses must be substantiated, but instead of keeping records of the actual cost of meal expenses, a “standard meal allowance” ranging from $46 to $71 per day can generally be used, depending on where and when the individual travels. Generally, the deduction for unreimbursed business meals is limited to 50% of the cost that would otherwise be deductible.
Lodging expenses must be substantiated with actual receipts and are 100% deductible. Meals included in lodging expenses, such as room service or dining costs charged to a hotel room, must be separately identified, since meals have the 50% limitation noted above.
Taking the Spouse Along? – Generally, deductions are denied for travel expenses paid or incurred for a spouse, dependent or employee of the taxpayer on business unless the:
(1) The spouse or dependent is an employee of the taxpayer, and
(2) The travel of the spouse, dependent or employee is for a bona fide business purpose, and
(3) The expenses would otherwise be deductible by the spouse, dependent or employee.
Strategy – The law allows a deduction for the single rate for lodging, and there is frequently no rate difference between one and two occupants for a room. Thus, virtually the entire lodging expenses for an accompanying spouse will be deductible. When traveling by car, the law does not require any allocation because the spouse is also traveling in the vehicle. Thus, if traveling by vehicle, the entire cost of the transportation would be deductible. This generally also applies to taxis at the destination. The only substantial cost that is not allowed is the costs of the spouse’s meals that, even if they were deductible, would be reduced by the 50% rule. If traveling by air or rail, the cost of the spouse’s tickets is also not deductible.
Have questions about business travel expenses? Give our office a call.
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2015_03_17 Tax tips 6720951131_b89caa0d51The following tax tips may save you some headaches when it comes to filing your taxes. Food and lodging expenses are generally deductible when away from home for business purposes. This may be particularly beneficial for self-employed individuals who travel extensively. Like everything involving taxes, there are rules to follow.

Tax Tip 1: Accurate Records and Receipts

The IRS requires that lodging expenses (and other expenses of $75 or more) be substantiated by records or other evidence. Acceptable records include diaries, logs, receipts, paid bills and expense reports. The records should disclose the amount, date, place and essential character of each expense. Diaries and logs should be notated close to the time of the expense; newly created diary, log and calendar entries made months (or years) later when the IRS requests documentation in an audit are less likely to pass an audit than those that were prepared when the travel and expenses occurred.

  • Keep good records of your travel expenses.
  • Document the business purpose and the expected business benefit.
  • Retain your travel itinerary to document the business activity while away.

Travel expenses are deductible only if the individual is away from his or her “tax home” for more than one business day. “Tax home” usually means the individual’s regular place of business.

Meal expenses are only deductible if the trip is overnight or long enough that there is a need to stop for sleep or rest in order to properly perform one’s duties. The amount of the meal expenses must be substantiated. Instead of keeping records of the actual cost of meal expenses, a “standard meal allowance” ranging from $46 to $71 per day can generally be used. This depends on where and when the individual travels. Generally, the deduction for unreimbursed business meals is limited to 50% of the cost that would otherwise be deductible.

Lodging expenses must be substantiated with actual receipts. Lodging is 100% deductible. Meals included in lodging expenses, such as room service or dining costs charged to a hotel room, must be separately identified. This is because meals have the 50% limitation as noted above.

Tax Tip 2: Taking the Spouse Along

Generally, deductions are denied for travel expenses paid or incurred for a spouse, dependent or employee of the taxpayer on business unless the:

  1. The spouse or dependent is an employee of the taxpayer, and
  2. The travel of the spouse, dependent or employee is for a bona fide business purpose, and
  3. The expenses would otherwise be deductible by the spouse, dependent or employee.

Strategy

The law allows a deduction for the single rate for lodging, and there is frequently no rate difference between one and two occupants for a room. Thus, the entire lodging expenses for an accompanying spouse will be deductible. When traveling by car, the law does not require any allocation because the spouse is also traveling in the vehicle. Therefore, if traveling by vehicle, the entire cost of the transportation would be deductible. This generally applies to taxis at the destination. The only substantial cost that is not allowed is the costs of the spouse’s meals, Even if the meals were deductible, they would be reduced by the 50% rule. Also note that if you are traveling by air or rail, the cost of the spouse’s tickets is not deductible.

Do you have questions or do you need more tax tips?

With less than one month to go, do you have questions about filing your tax refund? If you have thoughts, questions or concerns about how your taxes are filed, contact us or visit any one of our locations. We have an ultra-convenient service and can schedule an appointment for you. You may also leave your comments below or post on our FacebookGoogle+ or LinkedIn pages.

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Tax Season is Here!

Time flies – before it slips away, call Alex Franch, EA at 781-849-7200 for your appointment and learn about our client discounts here.

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The Joseph Cahill | WorthTax newsletter is available via e-mail on a free subscription basis. You can subscribe or unsubscribe at any time. For more information about – Joseph Cahill | WorthTax, go to http://worthtax.com.

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Business Travel: Are You Driving for Business?

by Alex Franch, Enrolled Agent

Most business travel of involves the use a car, van, pickup or panel truck. While the costs are significant, tax deductions are available.

medium_7044479533What Does Business Travel include?

  • Travel from one work location to another
  • Visiting customers
  • Attending a business meeting away from the regular work place
  • Travel from home to a temporary workplace if you have one or more regular places of work.
  • It is important to note that travel between a taxpayer’s home and regular place of work is commuting expense and considered personal (i.e., not deductible).

There are two methods to calculate cost that may be used for business travel:  a standard mileage rate (56 cents in 2014) or actual expenses.  In addition, both of these methods require calculating the business portion of the expenses that may be deducted.  Both methods require adequate recordkeeping.

The calculation for the deductible portion of expenses allowed for tax purposes is based on a ratio of business use.  For example, if you drive a car a total of 10,000 miles for the year, of which 7,500 miles are for business purposes, the business use percentage is 75%. Therefore, 75% will be applied against total expenses of operating the car.

Keeping a mileage log is the recordkeeping required to validate business use.  The daily log should show miles traveled, destination and business purpose.  To simplify, note the odometer reading at the beginning and end of the year to calculate total miles driven.  Sum up the business miles from the daily log to determine a total for the year.  Divide the Business Miles by Total Miles = % of Business Use. This is to be applied against costs.

There are smartphone apps with GPS capability. TaxPocket, is one app that helps to maintain a mileage log.

What Additional Records Must be Maintained?

  • Date the vehicle was placed into use for business travel
  • Adjusted cost basis of vehicle (keep bills of sale and records of trade-in/disposal or lease contracts)
  • Receipts to prove operating expenses (if using the actual cost method)

In conclusion, using a vehicle for business travel purposes is commonplace.  As with all tax deductions, recordkeeping is required to prove the deduction.  Using the standard mileage rate simplifies recordkeeping. Remember, a mileage log is mandatory.

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