Table of Contents

Can I deduct the cost of meals on days I call on customers or clients away from my office?

Generally not. Usually, you can only deduct costs of meals when youíre away from home overnight, or as part of business-related entertainment.

Even when deduction is allowed, itís only to the extent of 50% of the meals costs and related tips.

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Must I report employer reimbursements for travel, entertainment and meals?

It depends. If you give your employer a detailed expense accounting, return any excess reimbursement, and meet other requirements, you donít have to report the reimbursementóand donít deduct the expenses.

This means that any deduction limits are imposed on your boss, not you, and the 2% limit on miscellaneous itemized deductions wonít affect your travel, entertainment and meals costs.

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What are the limits on deductible travel, entertainment and meals costs?

There are no dollar limits. Expenses must be "ordinary and necessary" (meaning appropriate and helpful) and not "lavish or extravagant", but this doesnít bar deluxe accommodations, travel or meals.

Deduction for business entertainment and business meals canít exceed 50% of the cost.

There are additional special limitations on skyboxes and luxury water travel.

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Can I deduct living expenses on temporary assignment away from the area where I live and work?

Yes. Living expenses at the temporary work site are away from home travel expenses.

An assignment is temporary if itís expected to last no more than a year. If itís expected to last more than a year, the new area is your tax home, so you canít deduct expenses there as away from home travel.

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What expenses can I deduct while traveling away from home?

A wide range of expenses can be deducted while traveling away from home.

Here are the main ones:

  • Transportation fares, or actual costs (or a per mile rate) of using your own vehicle. Also, transportation costs of getting around in the work areaóto and from hotels, restaurants, offices, terminals, etc.

  • Lodging and meals (subject to the 50% limit on meals)

  • Phone, fax, laundry, baggage handling

  • Tips related to the above

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What canít be deducted as travel expenses?

The following travel expenses cannot be deducted:

  • Costs of commuting between your residence and a work site, but itís a deductible business trip if your residence is your business headquarters.

  • Travel as education

  • Job hunting in a new field or looking for a new business site

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What can I deduct for business entertainment?

There are various conditions and limits for deductions for business and entertainment.

  • Generally, there should be a business discussion before, during or after the entertainment.

  • Generally, deduction for entertainment and meals is limited to 50% of the cost.

  • There are further limitations for club dues, entertainment facilities and skyboxes.

  • Spouses of business associates, and your own spouse, can be included in the entertainment in settings where spouse attendance is customary.

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How do I prove my travel and entertainment expenses?

If youíre an employee who is reimbursed for expenses, itís best if you can prove them only to your employer. This will require a written accounting to the employer, and return to the employer of any amounts in excess of expenses.

Some per diem arrangements and mileage allowancesócalled "accountable plans"ótake the place of detailed accounting to the employer, if time, place and business purpose are established.

Where expenses arenít fully reimbursed by your employer, or excess reimbursements arenít returned, detailed substantiation to IRS is required and, if youíre an employee, your deductions are subject to the 2% floor on miscellaneous itemized deductions.

Your expense records should be "contemporaneous"órecorded close to the time expenses are incurred.

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