Travel and Meals Expenses

Practice Areas

By Eunice Go

Did you know that the IRS allows you to deduct 50% of the cost of meals and 100% of the expenses for lodging and transportation incurred while traveling on as long as business is the primary reason for your travel?

To be deductible, expenses must be “ordinary and necessary”. Deduction is denied for any part of the travel expense that is “lavish or extravagant,” though this rule does not bar deducting the cost of first class travel or luxurious accommodations or (subject to percentage limitations) expensive meals.

How can you classify travel?

To deduct the costs of lodging and meals you must generally stay overnight in a place away from your regular place of business and longer than an ordinary day’s work such that you need to sleep or rest to meet the demands of your work while away from home. Otherwise, your costs are considered local transportation costs and the costs of lodging and meals are not deductible.

Where is your “home” for tax purposes?

The general view is that your “home” for travel expense purposes is your place of business or your post of duty. It is not where your family lives. When a person works at two different locations the cost of travelling to and from the place that generates less income as well as meals and lodging costs while working at that location are deductible.

Costs for travel, meals and lodging to a temporary worksite are deductible if the temporary assignment requires you to travel away from your tax home and that will end within a foreseeable time. If an assignment is expected to last for more than a year, under the tax law, travel, meal, and lodging costs are not deductible.

Employer Reimbursements

If an employer reimburses these expenses based on the receipts and records, maintained and provided by the employees (accountable plan), the employer can deduct all the expenses (subject to percentage limitations) on its corporate tax return. Note that meals and entertainment may be allowed only 50% deduction even though the employer reimburses 100% to the employee. In this case, the employees cannot deduct any of the expenses as they are reimbursed.

The employer may opt to reimburse a fixed amount and not require the employees to submit receipts (non-accountable plan). In this case, the entire amount will be added to the employees W2 and the employer will deduct 100% expense (no limitation on meals and entertainment amount) as salary. The employees can then deduct these expenses on their individual tax returns.

To obtain more information on accountable and non-accountable plans and to determine the deductibility for any specific job/business related expenses please contact our office.