Uncle Sam often examines deductible travel expenses through a magnifying glass. So both employers and employees must meet strict recordkeeping rules—or face the consequences.
Fortunately, you can take a shortcut. Use IRS-approved per-diem allowance rates in lieu of accounting for every bagel and cab ride from an employee's business trip. The per-diem reimbursements are tax-free to employees up to the government-approved levels. And your company can deduct the reimbursement payments, subject to the 50 percent limit for meals.
Two basic per-diem rates are at your disposal. The first is based on the particular area in the continental United States where the employee is traveling. The second identifies each city as either a "high-cost" or "low-cost" area, then sets flat per-diem allowances for both options.
Choose most-favorable method
But here's one thing most people don't realize: Nothing says you have to use the same method for all employees. So you can use the per-city method for Employee A and the "high/low" method for Employee B. Choose whichever provides better results.
How can I mix 2009 business and pleasure travel and write off the maximum?
Even the IRS agrees there’s a way to deduct all your expenses … no questions asked. Just make sure that you extend the fun through Saturday night. When you show the air fare savings for Sunday travel outweigh the extra T&E expense, the IRS will pick up your tab.
Find more tax saving tips in 76 Ways to Maximize Your Expense Account Deductions
Why use per diems?
As long as your employees properly account for their actual business travel expenses, including meals and lodging, employer-paid reimbursements are tax-free to the employees. Plus, your company can deduct the reimbursement payments, subject to the 50 percent limit for meals.
The problem: Tracking all those travel receipts can be a recordkeeping nightmare.
But with a per-diem allowance, employees don't have to keep receipts for every expense. Your company simply pays the government-approved allowance—no muss, no fuss. Employees don't even have to report the payments on their tax return. But they still must substantiate the time, place and business purpose of their business travel.
Advice: To reduce the paperwork burden, you'll probably do best using the high/low method for employees who travel extensively, especially if they typically travel to major cities.
In 76 Ways to Maximize Your Expense Account Deductions, you'll learn what's deductible and what's not, including:
Plus, you'll also find out how to properly support your deductions with thorough backup records!
- Travel Expenses
- Meals and Lodging while Traveling
- Cost of Operating and Maintaining Business Vehicles
- Claiming and Proving T&E Deductions
76 Ways to Maximize Your Expense Account Deductions