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.