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Travel, Meal & Entertainment Expenses

Business Travel Expenses Are Partially Deductible

Travel Expenses

Transportation expenses, meal and lodging expenses, entertainment expenses, recordkeeping, the bottom line, frequently asked questions.

If you need to take a trip for work, you may be able to take a tax deduction for some or all of your meal and travel expenses. However, since the 2018 tax year began, business entertainment expenses have not been deductible.

Key Takeaways

• Travel expenses occur when you have to travel away from your tax home for business purposes.
• When you're on a business trip, you may be able to deduct transportation costs as well as meal and lodging expenses.
• Entertainment expenses are generally not deductible.

According to the IRS, travel expenses are ordinary and necessary expenses that occur when you have to travel away from your tax home for work. Your tax home is the place where you do the majority of your business, and is usually the city or town where your business is located. Travel expenses can include meals, lodging, transportation, and more.

If you are traveling away from your tax home on business by car, you can deduct the cost of transportation between your home and your business destination. If you drive your car, you can either use the IRS standard mileage rate or the actual cost of your car expenses . The standard mileage rates established by the IRS is updated at least once a year.

If you choose to use the standard mileage rate for a year, you can't deduct any actual car expenses, including depreciation, lease payments, and gasoline. You may find that it is better for you to claim your actual car expenses. If you do choose to claim your actual vehicle expenses and you use your vehicle for personal use, as well as business use, you must divide the expenses between the two.

If you don't travel using your car, you can deduct the cost of your taxi fare, commuter bus, airport limo, and any train or plane tickets.

If you go on a business trip that is overnight or long enough that you need to stop for sleep or rest, you can deduct the cost of your meals and lodging expenses. You can deduct the cost of your hotel room or lodging as well as the cost of your dry cleaning, laundry, and tips.

Meal expenses that you can claim as a business travel expense include food, drinks, taxes, and tips. You can usually only deduct 50% of the unreimbursed cost of your meals. However, you may be able to deduct 100% of your meal expenses if the meal was from a restaurant and was purchased between December 31, 2020 and January 1, 2023.

Although entertainment expenses generally stopped being deductible after January 1, 2018, you can still deduct entertainment expenses for promotional purposes. For example, if your company sponsors an event in order to promote your business, it may be deductible. You can also deduct the cost of food and beverages you provide during an entertainment event, if these costs are separate.

It is important to keep good records so that you can take tax deductions on business expenses. Keep your receipts, mileage records, and any other proof you may need. If you are audited, the IRS may ask you to prove that you were eligible for these tax deductions.

The Tax Cuts and Jobs Act of 2017 impacted the tax deductions of transportation, meals, and entertainment expenses for business owners and employees. It's more important than ever to keep good records regarding transportation expenses, and entertainment expenses are now non-deductible business expenses.

What are travel and entertainment expenses?

Business travel expenses occur when you travel away from your tax home for business purposes. Restrictions apply, but you can deduct meals, accommodations, and transportation expenses. Business entertainment expenses have been non-deductible since the 2018 tax year began. That means companies cannot take deductions for sporting events, concerts, or similar events. However, you may be able to take a business deduction for food and drinks provided during an entertainment event.

Do travel expenses include meals?

Yes, your travel expenses include meals if your business trip is overnight or long enough that you need to stop for sleep or rest. Meal expenses include food, drinks, taxes, and tips. You can usually only deduct 50% of the unreimbursed cost of your meals. However, you may be able to deduct 100% of your meal expenses if the meal was from a restaurant and was purchased between December 31, 2020 and January 1, 2023.

IRS. " Publication 463 Travel Gift and Car Expenses ," Page 10.

IRS. " Publication 463 (2021), Travel, Gift, and Car Expenses ."

IRS. “ IRS increases mileage rate for remainder of 2022 .”

Internal Revenue Service. " Publication 463 (2021), Travel, Gift, and Car Expenses ."

Deducting travel and entertainment expenses

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Dear Tax Talk, What entertainment expenses are tax deductible? If I give customers or employees tickets for sporting events, can I deduct these costs? — Monica

Dear Monica, Business-related entertainment expenses are tax-deductible expenses. Entertainment includes any activity generally considered to provide entertainment, amusement or recreation, and includes meals provided to a customer or client. In general, you can deduct only 50 percent of your business-related meal and entertainment expenses.

The 50 percent limit applies to business meals or entertainment expenses you have while:

• Traveling away from home (whether eating alone or with others) on business,
• Entertaining customers at your place of business, a restaurant or other location, or
• Attending a business convention or reception, business meeting or business luncheon at a club.

If employees travel for business, the costs of their meals, whether per diem or actual, are only 50 percent deductible. Although the costs of travel to a convention or conference are fully deductible, the meals while attending are only 50 percent deductible. If meals are provided as part of the conference and not separately stated, the full cost of the conference or convention is deductible.

Any item that might be considered either a gift or entertainment generally will be considered entertainment. If you give a customer tickets to a theater performance or sporting event and you do not go with the customer to the performance or event, you have a choice. You can treat the tickets as either a gift or entertainment, whichever is to your advantage. The deduction for gifts to customers is limited to $25 per person, per year. If the ticket cost more than $50, then the entertainment deduction would yield the greater tax savings.

If you deduct travel, entertainment, gift or transportation expenses, you must be able to prove (substantiate) certain elements of expense through adequate records. For example, most people maintain an appointment book or Microsoft Outlook calendar. If you have an entertainment expense associated with these meetings, you should indicate it in your log entry. The entry together with a charge on your credit card would be adequate records for an examination. Credit card charges alone do not provide sufficient detail. A log for tickets as well as other gifts distributed to customers or employees should be kept.

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How to Deduct Travel Expenses (with Examples)

Reviewed by

November 3, 2022

This article is Tax Professional approved

Good news: most of the regular costs of business travel are tax deductible.

Even better news: as long as the trip is primarily for business, you can tack on a few vacation days and still deduct the trip from your taxes (in good conscience).

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Even though we advise against exploiting this deduction, we do want you to understand how to leverage the process to save on your taxes, and get some R&R while you’re at it.

Follow the steps in this guide to exactly what qualifies as a travel expense, and how to not cross the line.

The travel needs to qualify as a “business trip”

Unfortunately, you can’t just jump on the next plane to the Bahamas and write the trip off as one giant business expense. To write off travel expenses, the IRS requires that the primary purpose of the trip needs to be for business purposes.

Here’s how to make sure your travel qualifies as a business trip.

1. You need to leave your tax home

Your tax home is the locale where your business is based. Traveling for work isn’t technically a “business trip” until you leave your tax home for longer than a normal work day, with the intention of doing business in another location.

2. Your trip must consist “mostly” of business

The IRS measures your time away in days. For a getaway to qualify as a business trip, you need to spend the majority of your trip doing business.

For example, say you go away for a week (seven days). You spend five days meeting with clients, and a couple of days lounging on the beach. That qualifies as business trip.

But if you spend three days meeting with clients, and four days on the beach? That’s a vacation. Luckily, the days that you travel to and from your location are counted as work days.

3. The trip needs to be an “ordinary and necessary” expense

“Ordinary and necessary ” is a term used by the IRS to designate expenses that are “ordinary” for a business, given the industry it’s in, and “necessary” for the sake of carrying out business activities.

If there are two virtually identical conferences taking place—one in Honolulu, the other in your hometown—you can’t write off an all-expense-paid trip to Hawaii.

Likewise, if you need to rent a car to get around, you’ll have trouble writing off the cost of a Range Rover if a Toyota Camry will get you there just as fast.

What qualifies as “ordinary and necessary” can seem like a gray area at times, and you may be tempted to fudge it. Our advice: err on the side of caution. if the IRS chooses to investigate and discovers you’ve claimed an expense that wasn’t necessary for conducting business, you could face serious penalties .

4. You need to plan the trip in advance

You can’t show up at Universal Studios , hand out business cards to everyone you meet in line for the roller coaster, call it “networking,” and deduct the cost of the trip from your taxes. A business trip needs to be planned in advance.

Before your trip, plan where you’ll be each day, when, and outline who you’ll spend it with. Document your plans in writing before you leave. If possible, email a copy to someone so it gets a timestamp. This helps prove that there was professional intent behind your trip.

The rules are different when you travel outside the United States

Business travel rules are slightly relaxed when you travel abroad.

If you travel outside the USA for more than a week (seven consecutive days, not counting the day you depart the United States):

You must spend at least 75% of your time outside of the country conducting business for the entire getaway to qualify as a business trip.

If you travel outside the USA for more than a week, but spend less than 75% of your time doing business, you can still deduct travel costs proportional to how much time you do spend working during the trip.

For example, say you go on an eight-day international trip. If you spend at least six days conducting business, you can deduct the entire cost of the trip as a business expense—because 6 is equivalent to 75% of your time away, which, remember, is the minimum you must spend on business in order for the entire trip to qualify as a deductible business expense.

But if you only spend four days out of the eight-day trip conducting business—or just 50% of your time away—you would only be able to deduct 50% of the cost of your travel expenses, because the trip no longer qualifies as entirely for business.

List of travel expenses

Here are some examples of business travel deductions you can claim:

• Plane, train, and bus tickets between your home and your business destination
• Baggage fees
• Laundry and dry cleaning during your trip
• Rental car costs
• Hotel and Airbnb costs
• 50% of eligible business meals
• 50% of meals while traveling to and from your destination

On a business trip, you can deduct 100% of the cost of travel to your destination, whether that’s a plane, train, or bus ticket. If you rent a car to get there, and to get around, that cost is deductible, too.

The cost of your lodging is tax deductible. You can also potentially deduct the cost of lodging on the days when you’re not conducting business, but it depends on how you schedule your trip. The trick is to wedge “vacation days” in between work days.

Here’s a sample itinerary to explain how this works:

Thursday: Fly to Durham, NC. Friday: Meet with clients. Saturday: Intermediate line dancing lessons. Sunday: Advanced line dancing lessons. Monday: Meet with clients. Tuesday: Fly home.

Thursday and Tuesday are travel days (remember: travel days on business trips count as work days). And Friday and Monday, you’ll be conducting business.

It wouldn’t make sense to fly home for the weekend (your non-work days), only to fly back into Durham for your business meetings on Monday morning.

So, since you’re technically staying in Durham on Saturday and Sunday, between the days when you’ll be conducting business, the total cost of your lodging on the trip is tax deductible, even if you aren’t actually doing any work on the weekend.

It’s not your fault that your client meetings are happening in Durham—the unofficial line dancing capital of America .

Meals and entertainment during your stay

Even on a business trip, you can only deduct a portion of the meal and entertainment expenses that specifically facilitate business. So, if you’re in Louisiana closing a deal over some alligator nuggets, you can write off 50% of the bill.

Just make sure you make a note on the receipt, or in your expense-tracking app , about the nature of the meeting you conducted—who you met with, when, and what you discussed.

On the other hand, if you’re sampling the local cuisine and there’s no clear business justification for doing so, you’ll have to pay for the meal out of your own pocket.

Meals and entertainment while you travel

While you are traveling to the destination where you’re doing business, the meals you eat along the way can be deducted by 50% as business expenses.

This could be your chance to sample local delicacies and write them off on your tax return. Just make sure your tastes aren’t too extravagant. Just like any deductible business expense, the meals must remain “ordinary and necessary” for conducting business.

How Bench can help

Surprised at the kinds of expenses that are tax-deductible? Travel expenses are just one of many unexpected deductible costs that can reduce your tax bill. But with messy or incomplete financials, you can miss these tax saving expenses and end up with a bigger bill than necessary.

Enter Bench, America’s largest bookkeeping service. With a Bench subscription, your team of bookkeepers imports every transaction from your bank, credit cards, and merchant processors, accurately categorizing each and reviewing for hidden tax deductions. We provide you with complete and up-to-date bookkeeping, guaranteeing that you won’t miss a single opportunity to save.

Want to talk taxes with a professional? With a premium subscription, you get access to unlimited, on-demand consultations with our tax professionals. They can help you identify deductions, find unexpected opportunities for savings, and ensure you’re paying the smallest possible tax bill. Learn more .

Bringing friends & family on a business trip

Don’t feel like spending the vacation portion of your business trip all alone? While you can’t directly deduct the expense of bringing friends and family on business trips, some costs can be offset indirectly.

Driving to your destination

Have three or four empty seats in your car? Feel free to fill them. As long as you’re traveling for business, and renting a vehicle is a “necessary and ordinary” expense, you can still deduct your business mileage or car rental costs even when others join you for the ride.

One exception: If you incur extra mileage or “unnecessary” rental costs because you bring your family along for the ride, the expense is no longer deductible because it isn’t “necessary or ordinary.”

For example, let’s say you had to rent an extra large van to bring your children on a business trip. If you wouldn’t have needed to rent the same vehicle to travel alone, the expense of the extra large van no longer qualifies as a business deduction.

Renting a place to stay

Similar to the driving expense, you can only deduct lodging equivalent to what you would use if you were travelling alone.

However, there is some flexibility. If you pay for lodging to accommodate you and your family, you can deduct the portion of lodging costs that is equivalent to what you would pay only for yourself .

For example, let’s say a hotel room for one person costs $100, but a hotel room that can accommodate your family costs $150. You can rent the $150 option and deduct $100 of the cost as a business expense—because $100 is how much you’d be paying if you were staying there alone.

This deduction has the potential to save you a lot of money on accommodation for your family. Just make sure you hold on to receipts and records that state the prices of different rooms, in case you need to justify the expense to the IRS

Heads up. When it comes to AirBnB, the lines get blurry. It’s easy to compare the cost of a hotel room with one bed to a hotel room with two beds. But when you’re comparing significantly different lodgings, with different owners—a pool house versus a condo, for example—it becomes hard to justify deductions. Sticking to “traditional” lodging like hotels and motels may help you avoid scrutiny during an audit. And when in doubt: ask your tax advisor.

So your trip is technically a vacation? You can still claim any business-related expenses

The moment your getaway crosses the line from “business trip” to “vacation” (e.g. you spend more days toasting your buns than closing deals) you can no longer deduct business travel expenses.

Generally, a “vacation” is:

• A trip where you don’t spend the majority of your days doing business
• A business trip you can’t back up with correct documentation

However, you can still deduct regular business-related expenses if you happen to conduct business while you’re on vacay.

For example, say you visit Portland for fun, and one of your clients also lives in that city. You have a lunch meeting with your client while you’re in town. Because the lunch is business related, you can write off 50% of the cost of the meal, the same way you would any other business meal and entertainment expense . Just make sure you keep the receipt.

Meanwhile, the other “vacation” related expenses that made it possible to meet with this client in person—plane tickets to Portland, vehicle rental so you could drive around the city—cannot be deducted; the trip is still a vacation.

If your business travel is with your own vehicle

There are two ways to deduct business travel expenses when you’re using your own vehicle.

• Actual expenses method
• Standard mileage rate method

Actual expenses is where you total up the actual cost associated with using your vehicle (gas, insurance, new tires, parking fees, parking tickets while visiting a client etc.) and multiply it by the percentage of time you used it for business. If it was 50% for business during the tax year, you’d multiply your total car costs by 50%, and that’d be the amount you deduct.

Standard mileage is where you keep track of the business miles you drove during the tax year, and then you claim the standard mileage rate .

The cost of breaking the rules

Don’t bother trying to claim a business trip unless you have the paperwork to back it up. Use an app like Expensify to track business expenditure (especially when you travel for work) and master the art of small business recordkeeping .

If you claim eligible write offs and maintain proper documentation, you should have all of the records you need to justify your deductions during a tax audit.

Speaking of which, if your business is flagged to be audited, the IRS will make it a goal to notify you by mail as soon as possible after your filing. Usually, this is within two years of the date for which you’ve filed. However, the IRS reserves the right to go as far back as six years.

Tax penalties for disallowed business expense deductions

If you’re caught claiming a deduction you don’t qualify for, which helped you pay substantially less income tax than you should have, you’ll be penalized. In this case, “substantially less” means the equivalent of a difference of 10% of what you should have paid, or $5,000—whichever amount is higher.

The penalty is typically 20% of the difference between what you should have paid and what you actually paid in income tax. This is on top of making up the difference.

Ultimately, you’re paying back 120% of what you cheated off the IRS.

If you’re slightly confused at this point, don’t stress. Here’s an example to show you how this works:

Suppose you would normally pay $30,000 income tax. But because of a deduction you claimed, you only pay $29,000 income tax.

If the IRS determines that the deduction you claimed is illegitimate, you’ll have to pay the IRS $1200. That’s $1000 to make up the difference, and $200 for the penalty.

Form 8275 can help you avoid tax penalties

If you think a tax deduction may be challenged by the IRS, there’s a way you can file it while avoiding any chance of being penalized.

File Form 8275 along with your tax return. This form gives you the chance to highlight and explain the deduction in detail.

In the event you’re audited and the deduction you’ve listed on Form 8275 turns out to be illegitimate, you’ll still have to pay the difference to make up for what you should have paid in income tax—but you’ll be saved the 20% penalty.

Unfortunately, filing Form 8275 doesn’t reduce your chances of being audited.

Where to claim travel expenses

If you’re self-employed, you’ll claim travel expenses on Schedule C , which is part of Form 1040.

When it comes to taking advantage of the tax write-offs we’ve discussed in this article—or any tax write-offs, for that matter—the support of a professional bookkeeping team and a trusted CPA is essential.

Accurate financial statements will help you understand cash flow and track deductible expenses. And beyond filing your taxes, a CPA can spot deductions you may have overlooked, and represent you during a tax audit.

Learn more about how to find, hire, and work with an accountant . And when you’re ready to outsource your bookkeeping, try Bench .

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Business Entertainment Expenses and Deductions

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The 2017 Tax Cuts and Jobs Act (TCJA) sharply limited the IRS meals and entertainment deduction – except for certain employee events, like office parties, and for recreational, social, or similar activities. To help with corporate tax planning , this article outlines the basic IRS business meal rules and exceptions for business meal deductions, business entertainment expenses that are no longer deductible, and “ordinary” and “necessary” expenses.

What meal expenses are deductible?

For business entertainment expenses paid or incurred in 2018 and later, taxpayers generally may deduct 50% of the ordinary and necessary food and beverage expenses associated with operating their trade or business (for example, meals consumed by employees during work travel), if all the following conditions are met:

• The food or beverage expense is not lavish or extravagant.
• The taxpayer (or an employee of the taxpayer) is present.
• The food or beverages are provided to a current or prospective business associate.
• The food or beverages are provided during or at an entertainment activity; they are purchased separately; or stated separately on an invoice, receipt, or bill, such that the amount charged reflects the venue’s usual selling cost for those items if they were to be purchased separately from the entertainment or must approximate their reasonable value.

What qualifies for the 100% meal deduction?

There are several exceptions to the 50% deduction limitation in IRC §274(n)(1). They include select expenses listed under IRC §274(e), for example, expenses treated as compensation, reimbursed expenses, and recreational expenses for the benefit of the taxpayer’s employees, as well as:

• Meals in connection with reimbursed moving expenses included in the income of an employee under IRC §82
• Food or beverages required by a federal law to be provided to crew members of a commercial vessel (other than luxury vessels)
• Food or beverages provided to crew members of a commercial vessel operating on the Great Lakes, the Saint Lawrence Seaway, or any inland waterway of the U.S. that would be required by federal law to provide food and beverages to crew members if it were operated at sea (other than luxury vessels)
• Food or beverages provided on an offshore oil or gas platform or drilling rig
• Food or beverages provided on an oil or gas platform or drilling rig (or a support camp that is in proximity and integral to the platform or rig) located in the U.S. north of 54 degrees north latitude
• Food or beverages provided by a restaurant if the expense is paid or incurred in 2021 or 2022

What entertainment is not deductible?

Unless one of the exceptions under §274(e) applies, no deduction is allowed for expenses for entertainment activities or facilities.

What is the IRS rule for entertainment expenses?

An expense must be “necessary” as well as “ordinary” to be deductible, even though clearly incurred in carrying on a trade or business. An expense is “ordinary” if it’s normal or common within the taxpayer’s business community, even if it’s an unusual expense for the taxpayer. In addition, an expense is “necessary” if it’s appropriate and helpful (rather than absolutely essential) to the trade or business. The courts tend to accept the taxpayer’s own judgment of the business necessity of an expense, so long as the item is neither personal nor a capital cost.

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Travel and Entertainment Expenses: Learn How to Deduct

For some business owners, spending money on travel and entertainment is inevitable. You might need to take a business trip or decide to take a client out for lunch. Whatever your situation, you might be able to claim travel, meals, and entertainment tax deductions.

Travel and entertainment

You can deduct certain travel and entertainment expenses come tax time. Travel and entertainment expenses are costs you incur when you travel or entertain for business purposes.

You need to know the travel and entertainment policy. What expenses are covered under travel, and which are covered under entertainment?

Download our free guide to get 10 recordkeeping tips that can make tax time a breeze, get additional resources, and more.

You can deduct travel expenses if they are ordinary (common and accepted in your business) and necessary (helpful and appropriate for your business). When you need to leave your tax home (the area you primarily work in) to travel for business, you incur expenses related to transportation, lodging, and meals.

Publication 463 says you are traveling away from home if:

• You are gone from your tax home for more than an ordinary day’s work as a result of business
• You need to sleep or rest to meet the demands of your work while traveling

The type of deductible travel expenses depends on your business and circumstances. Here are some travel expenses you can deduct:

• Transportation (e.g., airplane, train, bus, or car)
• Lodging and meals
• Cleaning (dry cleaning and laundry)
• Tips related to deductible expenses

There is a 50% limit on deducting meals. You can only deduct 50% of your meal expenses. You cannot deduct your expenses for meals if they are lavish or extravagant.

You cannot deduct a spouse’s or dependent’s expenses. You might be able to claim a business tax deduction for an employee’s travel expenses if they are necessary to the trip.

If you have an expense that covers other types of costs, you must allocate the cost between each (e.g., your hotel includes breakfast).

You can only deduct business-related travel expenses. If you decide to stay longer for vacation, you cannot deduct the personal expenses.

Entertainment

Many entertainment expense deductions were repealed following the Tax Cuts and Job Acts of 2017 tax reform. However, there are still certain entertainment expenses you can deduct.

Under the tax law , you can deduct expenses for recreational, social, or similar activities if they are explicitly for the benefit of your employees (excluding highly compensated employees ). This means you can still deduct 100% of your entertainment expenses for office holiday parties.

You can categorize a meal as entertainment if you or an employee are present. Meal entertainment expenses are only 50% deductible. If you claim the cost of a meal as entertainment, you cannot also claim it as a travel expense.

Entertainment, amusement, recreation, or use of a facility or property are no longer deductible expenses. This means you cannot deduct expenses for taking clients out to sporting events. And, you cannot deduct tickets to qualified charitable events.

How to deduct expenses

To deduct travel, meals, and entertainment expenses, you need to keep accurate records. According to IRS Publication 463 , you must submit records that show the amount, time, place, and business purpose of each expense.

Update your small business accounting books and hold onto documents like receipts. Keep records for three years from the date you file.

For example, you could have an expense report that looks like this:

If you are a sole proprietor or own a single-member LLC, you need to deduct your travel and entertainment expenses on Schedule C (Form 1040), Profit or Loss from Business. Partners use Form 1065 , U.S. Return of Partnership Income.

C corporation shareholders use Form 1120 , U.S. Corporation Income Tax Return. S corporation shareholders use Form 1120S , U.S. Income Tax Return for an S Corporation.

You need to make sure your accounting books are accurate. We’ll help you get there. Try Patriot’s online accounting software to track your expenses. We offer free, USA-based support. Get your free trial today!

This article has been updated from its original publication date of November 30, 2017.

This is not intended as legal advice; for more information, please click here.

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Deducting travel and entertainment expenses with confidence.

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Owners, managers and salespeople often incur travel and entertainment expenses. Manufacturers and distributors need to understand how to legitimately claim these deductions and properly substantiate them to ward off unwanted IRS attention.

Travel expenses

Your company can deduct ordinary and necessary expenses that owners, employees and other business associates (such as prospective customers, suppliers or professional advisors) incur when traveling on business. These expenses include the travel costs of getting to and from your business destination, as well as any business-related expenses at your business destination. Examples include:

• Transportation by car, bus, train, boat or plane,
• Car rental at your destination,
• Shipping and baggage fees,
• Lodging and meals,
• Dry cleaning and laundry,
• Phone and Wi-Fi access charges.

You can deduct all travel expenses if your trip was entirely business related. But be careful to deduct only business-related expenses if you extend your business trip for a personal side trip.

In addition, if you have an accountable plan, you can exclude any qualifying employee reimbursements for such expenses from the employee’s taxable income — which also will reduce employment taxes.

Substantiation requirements

Travel expenses, along with meals and entertainment costs, are IRS hot buttons. If your business claims these expenses for tax purposes, expect the IRS to review your records at some point. So, it’s important to keep track of all expenses, using a log, diary, notebook or any other written record. Hold on to all this documentation for several years in case the IRS inquires about the deductions, including the expense’s:

• Time and place, and
• Business purpose.

If the expense is for meals or entertainment, you also must show the business relationship to the taxpayer of any person entertained. In general, business-related meals and entertainment costs are only 50% deductible — and they can’t be lavish or extravagant.

Alternative methods

The IRS’s requirements can turn expense reimbursement into a tedious, time-consuming process. As the employee travels, he or she must collect paper receipts and keep a log of all business meetings.

Then he or she typically submits a monthly expense report for all travel expenses. These reports usually require managerial approval. Administrative delays may occur if documentation is incomplete or a supervisor questions the business purpose (or reasonableness) of an expense item.

The IRS does, however, allow some recordkeeping shortcuts that may be worthwhile. For example, a sales rep who sees the same customers on a regular basis may be able to enter just the customer’s name in her day planner or Outlook calendar, rather than repeat all of the details for every visit.

To simplify matters further, some businesses opt to use IRS-approved per diems, instead of reimbursing employees for their actual expenses for lodging, meals and incidentals while traveling.

Incidental costs  don’t  include: 1) transportation between places of lodging or business and places where meals are taken, or 2) mailing costs of filing travel vouchers and paying employer-sponsored charge card billings. These costs must be reimbursed for separately from per diems.

Per-diem rates vary, depending on where and when the employee travels. If your company uses per-diem rates, employees don’t have to meet the usual recordkeeping rules required by law. Rather, the employer simply pays the specified allowance to employees. However, they still must substantiate the time, place and business purpose of the travel. In addition, individuals who own 10% or more of the business can’t be reimbursed using per-diem rates.

Planning and training

Recordkeeping is critical when it comes to deducting travel and entertainment expenses. With proper planning and training, a tax advisor can help your company implement strong travel and entertainment expense reimbursement policies and procedures that will withstand IRS scrutiny.

Business vs. personal expenses: What’s deductible?

Family-owned manufacturers tend to toe a fine line between personal and business expenses — and the IRS knows it. For example, a business owner might try to deduct the cost of an airplane ticket for a spouse to accompany the owner to attend a business convention. But unless there’s a bona fide business reason for the spouse’s presence, this expense isn’t deductible for business tax purposes.

When a bill contains both personal and business expenses, it may seem easier to charge it all to the business. However, such shortcuts could lead the IRS to disallow the  entire  deduction. So, it’s critical to maintain clear and detailed records of how you’ve split the bill to prove you’re complying with the tax rules.

Commingling business and personal expenses may extend beyond travel. Owners may be tempted to deduct, say, salary expense for family members who don’t render services to the company, personal legal fees or home renovation costs as business expenses. There are also some gray areas, such as home office renovations and family birthday parties that are attended by key customers.

It’s important for business owners to understand what qualifies as a business expense and to  always  keep business accounts separate from personal accounts. If not, the business and its owners could wind up in hot water with the IRS. 

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What Are Travel Expenses?

Understanding travel expenses, the bottom line.

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Travel Expenses Definition and Tax Deductible Categories

Michelle P. Scott is a New York attorney with extensive experience in tax, corporate, financial, and nonprofit law, and public policy. As General Counsel, private practitioner, and Congressional counsel, she has advised financial institutions, businesses, charities, individuals, and public officials, and written and lectured extensively.

For tax purposes, travel expenses are costs associated with traveling to conduct business-related activities. Reasonable travel expenses can generally be deducted from taxable income by a company when its employees incur costs while traveling away from home specifically for business. That business can include conferences or meetings.

Key Takeaways

• Travel expenses are tax-deductible only if they were incurred to conduct business-related activities.
• Only ordinary and necessary travel expenses are deductible; expenses that are deemed unreasonable, lavish, or extravagant are not deductible.
• The IRS considers employees to be traveling if their business obligations require them to be away from their "tax home” substantially longer than an ordinary day's work.
• Examples of deductible travel expenses include airfare, lodging, transportation services, meals and tips, and the use of communications devices.

Travel expenses incurred while on an indefinite work assignment that lasts more than one year are not deductible for tax purposes.

The Internal Revenue Service (IRS) considers employees to be traveling if their business obligations require them to be away from their "tax home" (the area where their main place of business is located) for substantially longer than an ordinary workday, and they need to get sleep or rest to meet the demands of their work while away.

Well-organized records—such as receipts, canceled checks, and other documents that support a deduction—can help you get reimbursed by your employer and can help your employer prepare tax returns. Examples of travel expenses can include:

• Airfare and lodging for the express purpose of conducting business away from home
• Transportation services such as taxis, buses, or trains to the airport or to and around the travel destination
• The cost of meals and tips, dry cleaning service for clothes, and the cost of business calls during business travel
• The cost of computer rental and other communications devices while on the business trip

Travel expenses do not include regular commuting costs.

Individual wage earners can no longer deduct unreimbursed business expenses. That deduction was one of many eliminated by the Tax Cuts and Jobs Act of 2017.

While many travel expenses can be deducted by businesses, those that are deemed unreasonable, lavish, or extravagant, or expenditures for personal purposes, may be excluded.

Types of Travel Expenses

Types of travel expenses can include:

• Personal vehicle expenses
• Taxi or rideshare expenses
• Airfare, train fare, or ferry fees
• Laundry and dry cleaning
• Business meals
• Business calls
• Shipment costs for work-related materials
• Some equipment rentals, such as computers or trailers

The use of a personal vehicle in conjunction with a business trip, including actual mileage, tolls, and parking fees, can be included as a travel expense. The cost of using rental vehicles can also be counted as a travel expense, though only for the business-use portion of the trip. For instance, if in the course of a business trip, you visited a family member or acquaintance, the cost of driving from the hotel to visit them would not qualify for travel expense deductions .

The IRS allows other types of ordinary and necessary expenses to be treated as related to business travel for deduction purposes. Such expenses can include transport to and from a business meal, the hiring of a public stenographer, payment for computer rental fees related to the trip, and the shipment of luggage and display materials used for business presentations.

Travel expenses can also include operating and maintaining a house trailer as part of the business trip.

Can I Deduct My Business Travel Expenses?

Business travel expenses can no longer be deducted by individuals.

If you are self-employed or operate your own business, you can deduct those "ordinary and necessary" business expenses from your return.

If you work for a company and are reimbursed for the costs of your business travel , your employer will deduct those costs at tax time.

Do I Need Receipts for Travel Expenses?

Yes. Whether you're an employee claiming reimbursement from an employer or a business owner claiming a tax deduction, you need to prepare to prove your expenditures. Keep a running log of your expenses and file away the receipts as backup.

What Are Reasonable Travel Expenses?

Reasonable travel expenses, from the viewpoint of an employer or the IRS, would include transportation to and from the business destination, accommodation costs, and meal costs. Certainly, business supplies and equipment necessary to do the job away from home are reasonable. Taxis or Ubers taken during the business trip are reasonable.

Unreasonable is a judgment call. The boss or the IRS might well frown upon a bill for a hotel suite instead of a room, or a sports car rental instead of a sedan.

Individual taxpayers need no longer fret over recordkeeping for unreimbursed travel expenses. They're no longer tax deductible by individuals, at least until 2025 when the provisions in the latest tax reform package are due to expire or be extended.

If you are self-employed or own your own business, you should keep records of your business travel expenses so that you can deduct them properly.

Internal Revenue Service. " Topic No. 511, Business Travel Expenses ."

Internal Revenue Service. " Publication 463, Travel, Gift, and Car Expenses ," Page 13.

Internal Revenue Service. " Publication 5307, Tax Reform Basics for Individuals and Families ," Page 7.

Internal Revenue Service. " Publication 463, Travel, Gift, and Car Expenses ," Pages 6-7, 13-14.

Internal Revenue Service. " Publication 463, Travel, Gift, and Car Expenses ," Page 4.

Internal Revenue Service. " Publication 5307, Tax Reform Basics for Individuals and Families ," Pages 5, 7.

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Travel and Entertainment Expenses – Best Practice

• Travel and Entertainment Expenses –…

Best practices for reporting business-related Travel and Entertainment expenses

Substantiating expenses

Traditionally, executives, salespeople and other workers who travel or entertain customers for business must submit expense reports after each trip or by the end of each month. Once approved by supervisors, expense reports enable workers to get reimbursed for expenses they pay personally.

Alternatively, some companies issue corporate credit cards to cover approved T&E expenses.

To comply with financial reporting and tax rules, the following information is usually required on expense reports:

• The amount of the expense,
• The time and place of the expense,
• The business purpose of the expense, and
• The business relationship to the taxpayer of any person fed or entertained (if the expense is for meals or entertainment).

Most companies require travelers to submit copies of original receipts, rather than credit card statements, with their expense reports for T&E items above a predetermined limit (usually $25 or $50). Examples of costs that may qualify for reimbursement are airfare, auto mileage, taxis and ride-sharing services, rental cars, gas and tolls, lodging, tips, business phone calls, wi-fi access charges and meals (with exceptions).

Entertainment expenses — such as football tickets, green fees and fishing excursions — are usually eligible for reimbursement, if permitted by the company’s T&E policy. Plus, they’re deductible for book purposes under U.S. Generally Accepted Accounting Principles (GAAP). But they’re not deductible under current tax law.

Expense accounts gone wild

Completing expense reports is often one of the most dreaded tasks for white-collar professionals. Though the temptation to procrastinate is strong, waiting until the end of the reporting period to submit expense reports can be problematic. It may be difficult to find receipts and remember the details about a business trip that happened weeks or months ago. This can result in errors and omissions when reporting expenses.

Expense account cheating is also common. For example, dishonest workers may overstate expenses, request multiple reimbursements, change numbers on a receipt and otherwise falsify their expense reports. One of the most common fraud methods is to mischaracterize expenses, using legitimate receipts for nonbusiness-related activities.

Getting a handle on spending

Now is a good time to review and possibly upgrade your T&E reporting practices. For example, remind workers what’s considered a “reimbursable” expense, and how often expense reports should be submitted. This prevents misunderstandings and makes punishing infractions, when they occur, easier.

Your company also might want to reinforce its T&E practices by investing in expense tracking software to help managers spot inconsistencies in reporting by subordinates. It’s also important to check for managers who override your company’s T&E policies. Everyone in an organization must be held to the same standards.

Contact us for more information about best practices in reporting T&E expenses. We can help you minimize the risk of errors, omissions and fraud.

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2024 guide to travel and expense management

T&e policy | best practices to an effective travel and expense policy, what is t&e, what are the benefits of a t&e policy (and what happens without one).

With only a handful of employees, managing travel expenses is still doable using Excel sheets and paper receipts. However, when companies are growing, the whole process of approving, reporting, and analyzing travel expenses gets more complex, and not only do finance and accounting teams take most of their valuable time for things that could be easily automated. Companies should define what the status quo is and what they want to achieve with automating their T&E. Once the T&E process is automated, it's simple to keep up with company growth or increased employee travel, and it will save a lot of administrative costs in the long run.

What does a T&E policy look like?

• Allowable business purposes for travel
• Booking tool and process (for air travel,, hotel rooms, public transportation, and car rental)
• Basic spending guidelines for each category including details of eligibility for upgrades to business class or first-class airfaresBest practices for reimbursable expenses,including necessary supporting documentation (for food, ground transportation, and other small expenses)
• Examples of non-reimbursable expenditure e.g. personal entertainment and policies for alcoholic beverages and non employees joining business trips for leisure purposes.
• The disciplinary action that will be taken if business travelers fail to comply with your policy

How T&E management tools can help

• Faster approval process and alerts for policy violations
• Cost savings from better policy compliance
• Accurate spending limits per team, department, or project
• Transparent, real-time data on travel and entertainment expenses
• Consolidated expense reporting from a single booking tool
• Advanced T&E cost tracking allowing finance teams to forecast future business travel expenses
• More accurate expense data. Analyze different expense categories and individual employee expenses in just a few clicks
• Ability to identify travel spend trends among employees and seek out loyalty memberships for experience-enhancing perks
• Faster reimbursement for out of pocket expense claims such as tolls, visa fees, travel insurance, business meals or mileage reimbursement when traveling in personal vehicles.

Out of policy flights in the search

T&e tax implications, the 5 best practices to streamline your travel and expense management, 1. make it accessible, 2. be ready for mobile, 3. create clear policies, 4. automate your workflow (and let travelers book for themselves), 5. onboard your automation tool, say hello to simpler t and e workflows.

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Corporate Travel and Entertainment Policy Best Practices

Traveling employees often incur significant expenses on company-funded trips. But how much is too much? According to recent statistics, businesses spend approximately $799 per person per day on a business trip. Expenses can quickly add up if not carefully watched over.  A travel and entertainment policy outlines what expenses are eligible, how much employees (and sometimes senior management) can spend on business-related travel and the specific terms for reimbursement.

In this article, we’ll explore what a travel and entertainment policy entails and how to make the most out of your business travel resources.

Travel and Entertainment Policy Definition

A travel and entertainment (T&E) policy is a set of regulations that govern business-related travel and entertainment expenses. It sets clear parameters regarding what is acceptable in an employee’s spending of company resources and reimbursement procedures. The policy also highlights acceptable activities for employees while traveling on company business; for instance, meetings and conferences.

Why Do You Need a Company Travel and Entertainment Policy ?

For starters, the primary goal of establishing a clearly defined T&E policy is to ensure that employees clearly understand what is expected of them when it comes to spending company funds on work-related trips. It also sets out the guidelines for hosting or entertaining clients for business purposes. 

The travel and entertainment policy also enables management to mitigate risks associated with misuse of funds and identify potential incidents of fraud, alongside non-compliance with legal requirements. 

With that said, here’s a more detailed breakdown of the main objectives of a travel and entertainment policy :

Fraud Prevention

Unfortunately, deliberate and unintentional fraudulent activity in corporate travel still plagues businesses, leading to significant losses in the long run. In fact, it is estimated that companies lose $125,000 to fraud on average. Although the causes and impact of fraud in business vary by department, traveling employees may contribute to fraudulent activity knowingly or unknowingly.  

This arises from the fact that employee and business goals for travel don’t always align. Occasionally, some employees will seek to benefit themselves at the expense of the company. A comprehensive policy prevents fraud by imposing strict procedures for the use of company resources and submission of the expense reports.

>> Related: 5 Ways FinTech Reduces Fraud <<

Better Resource Management

A well-thought-out travel and entertainment policy ensures that employees only adhere to activities that are acceptable and beneficial for the company’s objectives. For instance, paying for a client lunch meeting may be considered acceptable if it helps in solidifying mutually beneficial working relationships.

With a clear policy in place, businesses can ensure that their employees make the most of their allocated travel and entertainment expenses while avoiding overspending and poor management of company resources.

Cost Savings

As mentioned earlier, corporate travel expenses can pile up as a direct result of poor expense management and fraudulent activity. A corporate travel and entertainment policy shields businesses from such issues. This can be achieved by ensuring that spending on business trips, events, and other related activities is done in accordance with the expenses limited by the policy.

The policy also helps companies save money by ensuring that all expenses are properly accounted for and that the company is getting the best value for its money.

Elements of a Company Travel and Entertainment Policy

Different companies set out different policies that reflect their values and culture. Such elements should be tailored to the specific needs of the organization after taking into consideration its size, budget, regulations, and culture. 

Key elements of a T&E policy include:

The Scope of the Policy

First of all, how a company decides on its travel and entertainment policies does not just revolve around booking flights and hotels. There are regulations and guidelines that govern the spending of the company.

The scope of corporate travel and entertainment policies covers vital details such as: 

• The person/people responsible for authorizing travel.
• Who the policy applies to (junior or senior employees?).
• Possible risks.
• Expense reporting procedures.
• Reimbursement procedures.

The list goes on. In essence, the scope of the policy covers all the expectations for employees when traveling on behalf of the company or attending events.

>> Related: The Importance of Well-Defined Travel and Expense Policies for Businesses <<

Travel Approval/Authorization

All travel expenses, routes, and destinations should be authorized by appropriate managers and supervisors before they are incurred. Authorized expenses ensure that the trip is necessary for business, and will be covered by the company’s travel budget. Additionally, an authorization requirement will further help to prevent fraudulent expenses from being submitted for reimbursement.

Travel Budgeting Limits

While each company will have different budget limits, it is important for employees to stay within the budgeted amount so that expenses are kept under control.

Some key considerations for effective budget limits include:

• The number of days an employee will be expected to be away from work.
• The total cost of the trip.
• The number of people allowed to accompany an employee on a business trip.
• The types of travel that are approved (airfare, car rental, public transport, etc.).
• Spending on meals or entertainment during a business trip.

Once the total cost of the trip is determined, an appropriate limit can be set for how much money an employee can spend. This limit may be based on the number of people traveling with the employee, among other factors.

Travel Risk Management

Travel risk management involves assessing, monitoring, and controlling any risks associated with employee travel. The goal is to protect employees and the organization’s assets from risk by carefully anticipating these risks and adequately planning to mitigate them. 

A risk management plan may include:

• Establishing safety protocols for the use of local transport.
• Using approved agencies, suppliers, and companies to ensure quality services and avoid potential scams when booking flights or hotels.
• Creating a checklist for employees to complete prior to their departure. This checklist can include items such as passport and visa requirements, medical insurance, emergency contacts, etc.
• Employing tracking technology, such as GPS-enabled devices and applications to monitor an employee’s location during travel.
• Developing a communication plan for traveling employees so they can keep in touch with the company.
• Offering security training and advice to employees prior to their departure.
• Establishing an emergency contact list for traveling employees, in case of any incidents or emergencies.
• Ensuring that employees are familiar with local laws and customs before they leave.

By taking proactive steps to manage risks, businesses can ensure the safety of their employees while traveling.

>> Related: 10 Questions to Audit and Update Your Business Travel Policy <<

Travel Expense Reporting & Auditing

While T&E policies aim to provide clear travel guidelines for employees, it is important to point out that properly documenting and tracking employee expenses is essential for a company to manage its resources effectively.

Regular auditing further keeps the business compliant with tax regulation policies, and within budget.

When it comes to reporting and auditing travel expenses, there are several measures you can take to ensure accuracy and transparency. 

For starters, clear policies regarding acceptable expenses should be established and communicated to all employees. It should be clearly stated when these expenses must be reported, and more importantly, who is responsible for verifying them. If you’re in charge of a sizeable team, you may also want to consider using automated software systems to monitor and track employee spending in real-time. 

>> Related: Mapping the Travel Expense Accounting Process <<

Action Measures for Non-Compliance

Non-compliance with a company’s corporate travel and entertainment policy can lead to significant financial losses as well as potential legal issues. To ensure that all employees adhere to the rules, a clear action plan must be established for employees who do not comply.

First and foremost, any employee found guilty of violating the policy should receive a formal warning. The warning should be sent via email or letter and should include a detailed explanation of the violation.

If the violation persists, further action may be taken. This depends on company policy around fraud and could include disciplinary measures such as suspension, termination, or even legal action depending on the severity of the situation. 

Regardless, it is important to clearly define these consequences in the travel and entertainment policy so that employees are aware of the potential repercussions.

How to Create an Effective Corporate Travel and Entertainment Policy

Having a clear and effective corporate travel and entertainment (T&E) policy in place can help companies manage their expenses and set expectations for their employees. However, creating a policy that balances employee satisfaction and corporate cost control is no walk in the park.

A well-crafted T&E policy can help organizations save money on their travel and entertainment expenses while also ensuring that employees have a smooth and stress-free experience. 

Here are the key steps taken in developing an effective T&E policy:

Identify the Purpose of the Travel and Entertainment Policy

The purpose of a corporate travel and entertainment policy is to provide guidelines and regulations for traveling employees in their duty to the company. It ensures that company resources are used responsibly and ethically when traveling or entertaining on behalf of the company.

Establish Criteria for Travel

When creating a corporate travel policy, it is important to set clear criteria that determine who is eligible for business travel. Details such as the necessary qualifications, job title, and/or seniority level needed to be eligible for business travel can be outlined in the criteria. Additionally, the criteria for travel define the roles or responsibilities of each person traveling on behalf of the company.

Forecasting Your Budget

Forecasting the budget for business trips helps the company estimate how much money should be allocated for travel expenses and provides insight into which areas are likely to incur the most costs. Forecasting also allows you to set clear expense limits so that employees don’t overspend while on business trips. Some travel management platforms may even help you by calculating dynamic budgets based on real-time rates.

Setting Expense Limits

The policy should also specify which types of expenses are allowable and which are not. This will help employees understand what they can and cannot spend company funds on while traveling, as well as any limits that may apply.

Outlining Acceptable Expenses

It is important to list down what types of expenses are acceptable, as well as the limits on these expenses. 

When it comes to outlining acceptable expenses, there are several categories that should be addressed. Common examples of acceptable expenses in travel and entertainment policies may include transportation, accommodation, meals, and entertainment. It is equally important to specify what types of expenses are not allowed, for instance, personal purchases or services that are unrelated to business travel.

>> Related:  Highlights from the 2023 State of Business T&E Report <<

Handling Expense Claims

Another important aspect of a corporate travel and entertainment policy is to ensure that employees are submitting their expenses properly. To do this, employers should provide clear instructions on how to submit expense claims, as well as any documentation or receipts necessary to support the claim.

Establish a Timeline for Submitting Expense Claims

The company should set clear deadlines for submitting claims and require all claims to be approved before reimbursement is issued. By setting these expectations in advance, you can ensure that all employees are abiding by the same rules when it comes to filing travel and entertainment expenses.

Review All Receipts and Documentation

All receipts and documentation should be properly reviewed. This review should include an in-depth examination of both the original receipts and any accompanying documents. These may include itineraries, expense reports, or other forms of proof.

The purpose of this review is to ensure that any expenses incurred fall in line with the company’s budget. Additionally, the review provides an opportunity to check for any discrepancies or fraudulent activity. If a discrepancy is found, it should be reported to the appropriate supervisor/manager so that any necessary action can be taken.

Compare Expenses to Policy

It is important for businesses to compare employees’ actual expenses to the policy on a regular basis to ensure that all spending is compliant with company regulations.

A good way to compare expenses to policy is by using dedicated expense tracking software . These tools allow companies to track and review employee spending easily, as well as compare it against the policy.

Verify the Accuracy of Expenses

All expenses, no matter how minor, must be reported to the finance department. The responsible supervisor should then assess the accuracy of all expense reports before submitting them for reimbursement. In this process, you should provide a detailed review of individual expense items and overall accuracy of the report as a whole.

>> Related: Sample T&E Dashboards for Proactively Monitoring Compliance, Budget, and Anomalies <<

Follow-Up With Employees

Having a corporate travel and entertainment policy is essential for any business, but it’s just as important to ensure that the policy is being followed. To ensure compliance with company policies and regulations, managers should follow up with their employees regularly.

You should check in with your employees both before and after business trips to ensure that all expenses are properly documented and appropriate. Additionally, you should regularly review employee receipts and other expense documentation to ensure accuracy and compliance with the company’s travel policy.

Pay Approved Claims Promptly

As a business, it is important to pay any approved claims promptly. Doing so helps maintain a positive working relationship with employees and vendors.

When approving claims, ensure the total amount stated in the claim is accurate and all supporting documents are included. Supporting documents may include credit card statements, receipts, and other forms of proof. Additionally, it is important to confirm that the expenses are in line with corporate policy.

Creating a corporate travel and entertainment policy is an important part of a business expense management strategy. By establishing clear criteria for who is eligible for business travel, forecasting the budget, setting expense limits, specifying acceptable expenses, and monitoring spending, companies can ensure that their employee travel activities stay within budget.

What is a travel policy?

A travel policy can be defined as the rules and guidelines established by an organization for business travel matters. Such rules dictate who is eligible to travel, where, and how much they can spend on meals and accommodations. Other essential matters discussed in the policy include reimbursements for expenses.

Why create a business travel policy?

A well-constructed policy helps keep business travel safe, cost-effective, and compliant. The main reason for creating a business travel policy is to protect the organization from financial risks and potential legal issues associated with employee travel.

What should be included in a corporate travel policy?

A comprehensive corporate travel policy contains guidelines for employees and contractors to follow when handling both domestic and international travel expenses. Important matters to be included in the policy should cover reimbursement rates, allowable expenses, booking procedures and restrictions, and safety considerations.

What should you consider when creating a business travel policy?

Key considerations to keep in mind include the destinations and objectives of trips to be taken by employees. The size of the business should also be taken into consideration since startups often don’t have the same resources as established companies.

What’s included in a T&E expense report?

A T&E expense report typically includes details about the dates of travel, expenses incurred, the purpose of travel, and any other relevant information such as airline tickets purchased or hotel accommodation. The names of those attending can also be included along with the cost per person for all meals and entertainment activities.

What travel expenses are deductible?

Generally speaking, several business-related travel and entertainment expenses are deductible. Examples of deductible travel expenses may include transportation (airfare, car rentals, taxis, etc.), lodging (hotel stays), meals, and entertainment.

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• Expense Management

What is T&E expenses?: Travel & Expenses Management

Automate expense management, employee reimbursements & spend reports in 15 minutes. No coding or credit card required.

In business terms, T&E stands for Travel and Expenses or Travel and Entertainment. Sometimes, especially in the service industry, T&E can stand for Time and Expense, referring to the time invested in a project and expenses incurred to execute the project successfully.

For running a business, many times employees are required to go to different destinations to meet new clients and identify new markets with a view to expanding the business.

What is Travel and Expenses (T&E)?

In a corporate context, T&E (or T and E) refers to Travel and Expenses or Travel and Entertainment . This encompasses the c osts incurred by a business when employees travel away from their usual base for work purposes . In the professional services sector, T&E can also denote Time and Expense, indicating the time spent on a project recorded for utilization records and billing purposes. Understanding T&E is vital for effective financial management and budgeting in organizations.

When employees leave their operating base for these purposes, the organization must pay for their travel and related expenditures. This expenditure is categorized as T&E, which is travel and expenses.

Travel and spending are one of the most significant expenses for many businesses.

According to the Global Business Travel Association, business travel spending grew globally to $305 billion in 2018 from $292 billion in 2017

Profitability is significantly impacted by efficient budget and spending management . The overall profit is decreased if employees spend too much on lodging, transportation, food, and beverages. However, strict expenditure limitations may prevent employees from attending important meetings and activities.

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What are the components of Travel & Expenses?

Travel between source and destination.

This covers the price of any required travel by air, rail, road, or river to conduct business away from home for an extended period of time. Only out-of-pocket payments may be written off, not the value of frequent flier miles or other rewards programs.

Travel at destination

This includes the use of a taxi, shuttle, limousine, or ride-sharing service to get from the airport to your hotel and a place of business. Even if you work in a different city within the same metropolitan area as your tax home or office, the expense of your usual commute to and from those locations is not deductible.

Food expenses

Seasonal variations in standard rates cause them to vary from month to month. They include a meal allowance (breakfast, lunch, and supper) as well as incidental costs (M&IE), such as tips or room service fees.

Communication and Other Expenses

This covers expenses on calls, internet, and any other expense incurred like laundry, gifts given to clients, etc

Entertainment

This covers the price of taking clients or staff members on business trips and their families to sporting events, clubs, or activities that resemble vacations. Additionally, "lavish or costly" meals that aren't quantified by a specific cash amount are covered by the entertainment exemption. To assist employees in navigating the murky waters around entertainment and meals, your travel cost policy should offer direction or impose spending caps.

61% of business travelers report that their current travel schedules are falling short of their expectations, and 82% of business travelers report their company is returning to pre-pandemic levels but with a “more travel on fewer shoulders” approach

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What are the stages in Travel and Expense reimbursement?

Approval & submission of travel request.

The employee gives his or her manager the travel request. The request includes information such as The reason for the call, the recruiting, the visit to the distributor, etc. dates of travel (start and end dates), the locations of the source and the destination, the mode of transportation, and the cost center to which the expense will be paid. The employee then sends the request to his/her manager who reviews it and approves/rejects it and asks for modifications to it if needed.

Reservations by Travel Department

The employee's reservations (for travel, lodging, and other services) are made by the travel desk. In certain businesses, it is the employees' obligation to make the reservation.

The travel department books the flights and provides the traveling employee with confirmation of the details of the tickets, accommodation, etc.

Expense Request and Approval

Once the employee reaches the destination, he will incur expenses. For this purpose, he will raise appropriate requests. The employee asks his or her manager for permission before incurring expenses. This is often done by filling out a paper or online form with the information needed to incur the expense (such as the item, the need for it, the anticipated cost, the cost center to which it will be charged, etc.). After reviewing the expense request, the manager decides whether to accept it or not. If the request is approved, the employee goes ahead with the expense and if denied, the employee won't be able to incur that expense on behalf of the business.

T & E Report Submission

Once the employee returns from the trip, they submit their T&E report. Most businesses have rules on how soon after a trip is over a claim may be lodged. This policy makes sure that employees submit their expense reports on time so that management can view expenses as soon as possible.

The employee includes the trip request number against which the expense was incurred in the expense report, and the matter is then closed. The T&E desk validates the claim that was submitted. From the standpoint of outsourcing, this step is the most crucial and necessitates a full understanding of the client's payment procedures.

Verification and Settlement

Once the team receives the documents, they start sorting, scanning, and uploading them into the document management system. These papers are indexed in the document management system and made available to the team offering the verification services for further processing. The verification team confirms that the trip expense has legitimate authorization from a manager or authorized employee.

The verification team then examines the expense report to see if it is accompanied by genuine receipts and bills. Employees are requested to submit claims again if any receipts are missing, along with the missing receipts. The claim is next examined to see if it adheres to the company's T&E policy in terms of eligibility requirements and spending limits. The verification team authorizes the claim for payment if all the conditions are examined and determined to be in compliance. The transaction is completed, and the employee gets paid.

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What is the importance of T & E?

T&E is after payroll , the second-most challenging operating expense, according to a Forrester Research poll.

8 to 12% of the average organization's total budget is spent on business-related travel and leisure.

This means that you should particularly pay attention to your T&E expenses if you're thinking about cutting costs or promoting more effective business procedures.

Most businesses believe that their spending is within reason and that there isn't much they can do to reduce their expenses. Such presumptions may not be accurate in reality, and it can be challenging to overcome them. They are only left with open eyes about how much more they spend and how much money employees might be spending outside of policy once they know their actual spending (after employing a competent T&E system).

When interpreted correctly, this information makes it possible to control spending patterns, monitor fraudulent spending, find duplicate invoices, etc. It reduces travel and expenses by more than 20%.

Business travelers can also benefit from a better T&E process. Employees who travel for work-related purposes or make out-of-pocket purchases for the company are concerned about how quickly they will be reimbursed. A smart system for managing travel and expenses can streamline the entire process. Shortening the entire approval time allows for speedy reimbursement and provides adequate visibility into the cash flow. It makes it simple to provide receipts and, if there are any infractions, it flags them.

When employees are certain that their prompt reporting will result in prompt reimbursement from the company, they will pay for unforeseen T&E expenses out of their own pockets without any fear or reluctance

Every year, underreported mileage causes organizations in the United States $5.4 billion dollars in losses

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Travel & Expense Report

A travel and expense report includes a breakdown of all the costs related to a certain business trip. The expense reporting form and all the paper receipts are kept together in a file. To receive timely reimbursements, employees must submit these expenses to the finance department or the reporting manager within a certain amount of time. Businesses typically have a T&E policy in place that spells out what should and shouldn't be done with business costs. It covers the spending caps for each category of expense as well as what happens when they are exceeded.

The company frequently needs its employees to travel, but managing cost reports is difficult. Paper receipts are occasionally trustworthy but are prone to lose and damage while traveling. Even after all the receipts have been sent, sorting and processing them takes time. Both the workers who are waiting for compensation and the department trying to keep track of expenditure reports find that frustrating.

To request compensation for out-of-pocket expenses, employers need employees to submit T&E expense reports. T&E expense reports frequently include details regarding each expense item, including:

• The date on which the cost was incurred.
• Where the cost was incurred, for example, at a restaurant or at a service center.
• The client or business for whom the item was bought.
• The item's price.
• Additional comments if required. For example, if it was a dinner, “ Dinner with Tom from ABC Networks for discussion of the proposal”

Depending on the kind of expense, these fields change. For instance, employees may fail to include the client/project or account number on T&E reports when asking for reimbursement for home internet access.

Why are T&E reports important?

Many employees dislike filing expense reports, but there are valid reasons to resist the urge to put them off. It may be a tall order to find the appropriate receipts or remember the specifics of a business trip weeks or months after the fact, so submitting expense reports at the very end of the reporting period can result in serious issues. After a trip, you should rapidly complete and submit expenditure reports to help prevent mistakes and omissions.

Employees who travel or host clients can get reimbursed for costs they personally incur by using expense reports. Salespeople, executives, and other employees who incur these costs typically have to submit expense reports to their managers for approval at the end of each trip or by the end of the month in which the charge was incurred. Employees may also utilize corporate credit cards from some businesses to pay for authorized T&E costs.

The report must include in detail the taxpayer's professional connection to any person who was fed or entertained if the expense was for meals or entertainment.

Most firms ask employees to submit copies of actual receipts rather than credit card statements when expense reports are made for T&E goods that exceed a predetermined limit (usually $25 or $50). Some frequent examples of expenses that may be eligible for reimbursement are airfare, hotel, rental cars, mileage on personal vehicles, gas and tolls, taxis and ride-sharing services, business phone calls, wi-fi access fees, tips, and meals.

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How do Organizations spend their T & E budgets?

In all industries, travel and lodging are still the top two expense categories. Unsurprisingly, compared to the corporate sector, government and nonprofit organizations spend more on travel and lodging (66%) and less on dining and entertainment (a combined 10%).

Mid-sized businesses spend the least amount (26%) on airfare as compared to larger firms, probably because their business operations are more likely to be local and involve fewer travels.

Additionally, the middle market has the greatest non-travel expenditure percentage (17%) , which may mean that they mostly use the corporate card for business-related expenses rather than a separate purchase card.

Since there are multiple sources of information needed to understand what a firm is purchasing and from whom, gathering travel data presents its own set of special difficulties. The general ledger , any cost management software, travel agency reports, and corporate credit card reporting are typical sources of travel information.

The card-to-employee ratio varies between 19.6% (for large businesses) to 26.9% (for the medium market) . The mid-sized sector reported a card-to-employee ratio of 18.1% in 2008. The Fortune 500 reports an average monthly card fee of $813, while mid-sized businesses charge an average of $1,290.

The greater purchasing power of large enterprises and the fact that mid-sized businesses utilize the corporate card for a sizeable portion of non-travel-related purchases could both be contributing causes to the discrepancy.

Even if spending restrictions are being imposed less frequently, they still amount to about $4,000 on average for the larger organizations, which may have grown more reliant on other control methods. The average cap for large and mid-sized businesses is $2,400.

All corporate sectors appear to prioritize training and communication.

The cost of a hotel stay is typically the most expensive part of an employee's vacation due to recent large increases in hotel rates. However, spending on hotels frequently only has one line item. Folio data is being used by more and more third-party providers and businesses to present a more thorough picture of hotel spending.

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Drawbacks of Manual Travel & Expense management

Lack of transparency.

Businesses that record and forecast corporate spending manually or with typical expense management software have a difficult time tracking and analyzing spending data at the end of the month.

Limited transparency of employee expenses and lack of spending insights is a prevalent concern among their finance team.

This inadequacy of data leads to inaccurate calculations and poor financial management, planning, and forecasting. Senior management also tends to receive falsified or heavily deviating reports which leads to them making poor choices that they are unable to recognize or change.

Employees frequently "cheat" while filing expense reports. For instance, a dishonest employee might inflate expenses; they might also alter the figures on a receipt, submit several requests for reimbursement, or think of other ways to draw out money from the company. One of the most popular strategies is misrepresenting expenses by using legitimate receipts for non-business-related activities.

Some businesses could make "informed guesstimates" about monthly spending since they had a strong handle on travel trends. However, COVID-19 upset everything.

According to Dataconomy , the pandemic upended categories and brought T & E spending to a grinding halt. 51 % of expenditures in March 2020 were on lodging. That fell to 20% in just one month, a 31 % decrease. Spending on corporate services, meanwhile, increased from 10% to 27%.

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Employee Dissatisfaction

When waiting for their T&E claim to be processed, 32% of employees think they were "left short," according to a survey.

Even when employees do submit cost claims, the reimbursement process doesn't always proceed as swiftly as is ideal. For 10% of workers, the procedure may take more than a month. Employees' perception of their employer suffers while they are struggling financially and coping with a difficult claims process.

When someone takes advantage of them, nobody likes them. Resentment, lack of enthusiasm, and abandoning the firm may result from this. They might even suggest to their network members not to work for your business. That kind of reputation won't benefit the organization in any way.

According to one-third of the employees questioned, one of the main reasons for unclaimed expenses is that filing an expense report takes too much time and frustration.

Despite the fact that it could appear that unclaimed expenses would save your business money, you don't want to be one of the businesses with subpar travel and expense (T&E) procedures that irritate workers.

Make it a point to use automated reimbursement solutions like Nanonets to reduce employee frustration & turnaround time.

Inefficient and time-consuming

A typical reimbursement procedure would look like this:

• An employee will submit the report and receipts after travel, making sure that all compliance criteria are satisfied.
• Managers who have been identified as authorizing evaluate the expenses. These invoices might be rejected, questioned further, or sent to the finance department for processing.
• These travel reports are compiled by finance staff, who manually identify claims.
• The payroll staff reviews the spending reports and makes any necessary reimbursements.
• The finance staff would return the expenses to the employee for any policy irregularities so that they may be corrected

The method must be repeated many times if there is any inconsistency or ambiguity in any of the steps. The process takes a very long time because of this.

Thus, processing claims can take time away from employees' working hours and productivity, leaving them with less time to complete valuable tasks for the company.

The cost of processing business travel expenditure reimbursements is frequently considerable, including the salaries of finance teams in charge of expense management and the resources needed for reporting. Don't just consider the one-time (for on-premises) or monthly (for SaaS/cloud) software cost when assessing expense management. The reporting process is further delayed and costlier when different systems are not able to "speak" to one another. Additionally, it is a waste of time for employees to search online for the greatest hotel and flight rates.

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Difficulty in tracking Receipts

Since receipts serve as proof, businesses typically require employees to include them with every expense report claim. It is essential for maintaining compliance and assisting finance teams during audits. Receipts, however, come in a variety of formats (paper, e-receipts, etc.), which presents difficulties like:

Employees find it tedious to manage several receipts, particularly when there is continuing T&E This often happens in the case of customer-facing teams. It puts more of a strain on finance teams to gather, confirm, and record them. In addition to this, many firms employ conventional approaches and reimbursement templates that may not have changed to meet the evolving demands of the sector. An unorganized expense workflow leads to confusion, lack of compliance, numerous rejections, and a delay in payment settlement.

Employees need a simple way to submit receipts with their expenditure reports so that the T&E management process runs smoothly.

Increased Spending

T&E management is considerably more difficult for big businesses. The accounting and finance teams devote more time and effort as the amount of expenditures rises, which results in greater processing costs. Organizations that are attempting to save wasteful spending by limiting necessary trips face challenges as a result of this.

Companies that don't continuously monitor T&E spending trends miss out on chances to improve policy decisions and take prompt action to stop potentially fraudulent or out-of-policy behavior.

The spreadsheet method to T&E management won't catch, for instance, that an employee who typically spends $500 per month visiting clients at their locations suddenly spends $750 without authorization or justification.

However, businesses that use the aforesaid machine learning in their travel and expenditure software are able to take early action. Anomalies, like that $250 monthly spending increase, that can point to fraud or human mistakes can be detected by a well-configured ML system.

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According to a PayStream Advisors survey , businesses spend about $20.18 processing each expenditure report.

Multiply this by the number of workers that travel for work and the total number of reports submitted each month. You are aware that this entails significant wealth. Large sums of money are spent on useless expenses that could have been stopped at the source.

Nearly half of the organizations ( 46% ) do not track the cost to process expense reports while 43% of companies are still managing expense reporting manually.

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Selecting the right T & E Automation software

63% of businesses already have their expense control processes (partially) automated, according to Pay Stream Advisors (2017)

This number will only increase because improving your travel and expense management (TEM) could significantly affect the financial results of your company. Thus, it is necessary to automate the T&E process using accounting automation software.

However, it's crucial to make sure you pick the best T&E solution and use it properly if you want to automate your cost management effectively. To minimize the time-traveling costs incurred by employees, approvers, and accounting or finance departments and to maximize your return on investment, high employee adoption rates are essential.

Various travel and expense management tools provide various functionalities. While some online solutions for managing expenses could be free, they only have extremely rudimentary features.

On the other hand, top-notch solutions provide features like cutting-edge OCR technology to "read" receipts and automatically pre-populate expense lines, calculations for mileage, adherence to local laws, the option to go completely paperless, and a mobile and desktop app, and offline mode.

IDC expects the worldwide Travel &Expense management software market to reach $2.7 billion by 2022 and have a compound annual growth rate of 8.7%

ROI of Travel & Expense Management Software

Setting a maximum budget for your expense management tool will be aided by making a rough estimate of prospective cost savings. The majority of businesses find that reducing the number of hours that traveling staff and the finance and accounting division must spend approving and monitoring expenses results in significant cost savings.

The precise amount of your potential cost savings and ROI will rely on your company's spending habits, workflow procedures, the number of traveling employees, business income, the employee adoption rate of the TEM tool, and the level of automation your preferred TEM product will provide.

The typical pay-back period for the most widely used TEM solutions is between six and seventeen months (G2Crowd, 2018)

Most of Nanonets clients see an ROI payback period of 3 months and 3-5X ROI. See how you can do it too.

Ease of Use

The adoption of automated expense management software is not a typical project where the vendor handles the majority of the work. In order to tailor the solution to your company's travel policies and reporting requirements, the TEM provider may help you with the system integration process. Post that however, it is the organization’s responsibility to make the best out of it. Thus it must be ensured that the software is not too complicated to use as that would further delay processes.

Additionally, the success of automating your spending management depends on the confidence and satisfaction of key figures in your accounting and finance department with the chosen solution. Thus, it is crucial to not only comprehend their needs but also actively involve them in the project from beginning to end.

“Ease of use” was cited by 59% of respondents as the most important factor when selecting a cloud-based expense system

Support and Security

Another crucial aspect while selecting the T&E software is that it should support interaction with other relevant company systems, such as accounts payable, human resources, human capital management, and customer relationship management.

Data and processes will flow between systems automatically if the T&E software supports various languages, delivers consistent processes globally, and adjusts to the specific cultural and regulatory constraints in each market. Additionally, the right solutions should give you access to a diverse partner ecosystem so you can integrate complementary enterprise apps into your T&E solution portfolio.

Data transfer across systems can be accelerated with the aid of APIs with prebuilt integrations. The most recent security procedures and fraud pattern-detection tools must be included in T&E systems in order to protect against risks to data security. You can stop both internal and external data threats with the correct tools.

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Benefits of Automating T&E

Migrating T&E processes from manual to automated can go a long way in improving the overall performance of an organization. Businesses may increase productivity and keep a tighter watch on employee business expenses, which are the second-largest controllable cost for the organization.

Less Paperwork

Intelligent automation gets rid of paperwork. With an expenditure management system in place, staff members can take photos of their receipts with their cellphones and submit them via a mobile app to the expense platform. They can then swiftly put everything together into an expenditure report and submit it right to the finance division.

This reduces the hassle of maintaining physical copies of multiple receipts. Even if a mistake is made, the finance division can identify where it happened, which is challenging to do with paper records.

The finance team can conveniently go over all the documentation to check everything and authorize the expense reports. This greatly reduces effort and the potential for error while also speeding up the process. The finance team may make mistakes while moving data from the spreadsheet to the accounting system even if your personnel provide flawless expense reports.

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Accurate Budgeting

T&E management systems provide Integrated spend reports that give useful insights, such as helping you choose a trip companion based on what proportion of your T&E money is spent on travel, lodging, and entertainment.

With the help of this data, your organization can come up with more accurate budgeting and a better distribution of funds to areas where they will have a significant impact.

Reduced time and costs

You can set travel pre-approval with a finance automation tool customized to business needs to make sure that employees are taking advantage of the best airfare deals as they become available. No more missing out on a bargain because a boss is too preoccupied to approve it!

Travelers in businesses with automated expense reporting systems use 33% less time on average to prepare reports than those in other businesses with best practices.

Small to midsize business (1-999 employees) users saved an average estimated $49K annually by implementing an automated travel and expense solution, and they saw positive ROI within eight months of implementation. (Source: Analysys Mason 2022 )

Faster Turnaround Time

Nothing is worse than rushing to turn in a report only to have to wait months for reimbursement after incurring expenses, especially if the employee paid out of pocket for an expensive product or service. The employee may become frustrated as a result, which may have an adverse effect on morale and production.

However, businesses may automate the approval and reimbursement process with efficient expenditure management procedures and tools.

Utilizing an automated expense management program expedites the approval and reimbursement processes. The manual procedure results in delayed reimbursement because finance managers and accountants have to spend a lot of time examining each expense report and passing assignments from one approver to another.

Organizations that automate their spend management tend to approve expense reports 4.9 days faster, spend less time handling receipts, and can approve expense reports on the go, all of which can lead to higher employee engagement and satisfaction, according to an Aberdeen report .

Better Tracking of Expenses

On average manual expense, processing spending is 3X times more in contrast to what can be achieved by a fully automated travel and expense system. Additionally, it can save 70% of their time.

Keeping track of all company spending-related documentation, such as reports, receipts, open invoices , and bills, is one of the main issues in manual expense reporting. These records are necessary for audits as well as reimbursement purposes. However, managing all the paperwork easily can be difficult when using manual expense management

Without misplacing or losing their receipts, employees can handle them. With the help of dashboards, finance teams may examine all corporate business expenses. All employee business reports are also accessible to approvers and the finance teams at any time and from any device. All employee spending reports can be tracked by the finance department for status and development. Every stakeholder involved has access to information about the expense reporting process.

Increased Compliance

According to studies, one out of every five expense reports includes a trip exemption. Some businesses only comply with regulations to a degree of 60%, which leads to wasteful spending on unauthorized charges.

By increasing adherence to and consistently enforcing corporate policy, travel managers might anticipate savings of up to 10%. It can be challenging to enforce expense standards without formal cost management software in place, which makes maintaining compliance all but impossible.

With an automated system, compliance and adherence to policies can be greatly improved. The entire procedure can be customized to comply with your company's travel policy. Employee expenses that go against the travel rules will be immediately reported to approvers as soon as they happen. This enables your team to quickly approve or reject expenditure claims in real time while checking for compliance.

Let Nanonets handle compliance, expense management, employee reimbursements & spend tracking for you while you focus on strategy & implementation. Sounds like a deal?

Best Practices for Travel and Expense Management

Clarify expense categories.

It is essential to identify what types of expenses are covered by the policy with a precise categorization. The organization must clearly define the categories. The document should go into detail about any additional guidelines that may apply to these expense categories, such as spending limits, the frequency with which a particular expense type may be incurred, and any exceptions that may need to be approved in order to meet regulatory compliance requirements. To avoid disagreement and discontent, it should also specify which expense categories are entirely or partially non-reimbursable.

The following are typical expense categories: air travel, ground travel, hotel, food, entertainment, etc. Having a distinct spending type for each in your T&E system can help you distinguish between meals for employees and meals for business. Establish rules for what is permitted for internal travel and meals versus outside entertainment for business.

Set Limits and Constraints

If possible, specify a daily spending cap for food, housing, entertainment, etc.

Set standards for car size, insurance protection, and fuelling practices. Consider whether you should pay the airline's baggage costs, trip insurance, and cancellation charges.

In addition to the monetary value, each worker can spend each transaction, but you can also assign each person a monthly allowance. This can also differ per employee and scope of authority. This restriction tool restricts the degree of danger the card poses to the company. Concerns from employers that a worker will incur extra costs may employ SIC blackouts.

Detailed policies and processes should be set before a procurement card programme is launched. Printed versions of these rules should be provided to all impacted workers. Set standards for car size, insurance protection, and fuelling practices. List a few recommended hotel chains or the lowest possible hotel rates per night.

Define a Time Frame for Travel and Expense Claims

A minimum and maximum time period must be defined for the submission and reimbursement of claims. This should contain the timelines for when an employee should submit an expense claim and when they should anticipate receiving reimbursement from your business.

Try to treat the workers fairly here. Since these are business expenses, you don't want your team members to lose money if they are late.

But you also want to encourage them to file their papers as soon as possible. A definite cutoff point might be the best option. The T&E policy document should specify in detail when travel requests should be made when bookings should be made when travelers should ask for an exemption, and when expenditure reports should be made.

If the business makes use of a sophisticated instrument for managing travel and expenses, the procedure should outline the steps a traveler should take from pre-trip approval to final payment. Additionally, it should describe the company's approver policy and how a traveler can choose their own approver.

Regularly Update the Travel & Expense Policy

Examine reports from your expense management system instead of just the T&E policy to find areas where you are spending more than you should. Perhaps there are ways to cut costs, such as creating a new site for booking trips or extending the permitted hotel list to incorporate accommodations from a budget chain.

At the very least once a year, update your expenditure policy. Not just because it is required, but also because using this strategy has other advantages:

"Reducing the amount you spend on suppliers is another reason to update your costs policy. Use any updates as a chance to specify which businesses should be used and try to reach an agreement for recurring business.

Looking to automate employee reimbursements? Try Nanonets. Trusted by 500+ enterprises and 30,000+ professionals. Rated 4.9 on G2 and Capterra. Give it a try, for free.

September 2022: The blog was originally published in July 2022 and was updated in September 2022.

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