How do I deduct travel, entertainment and meal expenses?

If your employer requires that you incur unreimbursed expenses for business travel or entertainment, these may be claimed on Form 2106, according to the instructions on that form.

Business entertainment and meal expenses (including meals you eat alone when out of town overnight on business) must not be extravagant or excessive, and the deduction is limited to 50% of the actual costs. For entertainment events, the deduction cannot be based on a figure higher than the face price of the tickets (i.e., premiums paid to ticket agencies or "scalpers" cannot be included.) Except for meals eaten alone while out of town, you must keep records that show the date, place, cost (including any tips), name of customer/client, and the nature of the business discussion that took place either immediately before, after or during the meal or entertainment event. (Note: Meals eaten with fellow employees, meals eaten alone on business daytrips, or "goodwill" meals that are not accompanied by any real business discussion, are not deductible.)

You must be able to document your travel and entertainment expenses. Generally, a logbook showing the pertinent information is sufficient. Exception: You must keep receipts for items that cost in excess of $75, and you must have outside documentation for lodging expenses.

If your employer reimburses you for your meal or entertainment expenses, the tax treatment depends on whether the plan is "accountable" or "non-accountable".

A plan is accountable to the extent that your employer requires that you account to him for your exact expenses, or pays you an amount based on your travel days that does not exceed the IRS approved per-diem rate for travel in that area of the country during that time of year. These rates are available in IRS Publication 463. Accountable allowances are not included in your Form W-2 as wages, and you can deduct only documented expenses that are in excess of that allowance (See Form 2106).

A non-accountable reimbursement or allowance is simply treated as additional compensation paid to you, and is included in your taxable wages on Form W-2. You can deduct your documented expenses, or the per-diem for meals and incidental expenses, on Form 2106.

The concept of accountable and non-accountable reimbursements or allowances also applies to business use of your car for your employer. Reimbursements are considered "accountable" to the extent that you provide your employer with records of you mileage and either the actual expenses (to be pro-rated for business use) or the reimbursement is based on the standard IRS mileage rate for business mileage. Click Here for Standard Mileage Rates for Business.

 

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