travel expenses reimbursement

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Travel expenses defined.

Members of the Armed Forces.

Main place of business or work.

No main place of business or work.

Factors used to determine tax home.

Tax Home Different From Family Home

Temporary assignment vs. indefinite assignment.

Exception for federal crime investigations or prosecutions.

Determining temporary or indefinite.

Going home on days off.

Probationary work period.

Separating costs.

Travel expenses for another individual.

Business associate.

Bona fide business purpose.

Lavish or extravagant.

50% limit on meals.

Actual Cost

Incidental expenses.

Incidental-expenses-only method.

50% limit may apply.

Who can use the standard meal allowance.

Use of the standard meal allowance for other travel.

Amount of standard meal allowance.

Federal government's fiscal year.

Standard meal allowance for areas outside the continental United States.

Special rate for transportation workers.

Travel for days you depart and return.

Trip Primarily for Business

Trip primarily for personal reasons.

Public transportation.

Private car.

Travel entirely for business.

Travel considered entirely for business.

Exception 1—No substantial control.

Exception 2—Outside United States no more than a week.

Exception 3—Less than 25% of time on personal activities.

Exception 4—Vacation not a major consideration.

Travel allocation rules.

Counting business days.

Transportation day.

Presence required.

Day spent on business.

Certain weekends and holidays.

Nonbusiness activity on the way to or from your business destination.

Nonbusiness activity at, near, or beyond business destination.

Other methods.

Travel Primarily for Personal Reasons

Daily limit on luxury water travel.

Meals and entertainment.

Not separately stated.

Convention agenda.

North American area.

Reasonableness test.

Cruise Ships

Deduction may depend on your type of business.

Exceptions to the Rules

Entertainment events.

Entertainment facilities.

Club dues and membership fees.

Gift or entertainment.

Other rules for meals and entertainment expenses.

Costs to include or exclude.

Application of 50% limit.

When to apply the 50% limit.

Taking turns paying for meals.

1—Expenses treated as compensation.

2—Employee's reimbursed expenses.

3—Self-employed reimbursed expenses.

4—Recreational expenses for employees.

5—Advertising expenses.

6—Sale of meals.

Individuals subject to “hours of service” limits.

Incidental costs.

Exceptions.

• Illustration of transportation expenses.

Temporary work location.

No regular place of work.

Two places of work.

Armed Forces reservists.

Commuting expenses.

Parking fees.

Advertising display on car.

Hauling tools or instruments.

Union members' trips from a union hall.

Office in the home.

Examples of deductible transportation.

Choosing the standard mileage rate.

Standard mileage rate not allowed.

Five or more cars.

Personal property taxes.

Parking fees and tolls.

Sale, trade-in, or other disposition.

Business and personal use.

Employer-provided vehicle.

Interest on car loans.

Taxes paid on your car.

Sales taxes.

Fines and collateral.

Casualty and theft losses.

Depreciation and section 179 deductions.

Car defined.

Qualified nonpersonal use vehicles.

More information.

More than 50% business use requirement.

Limit on the amount of the section 179 deduction.

Limit for sport utility and certain other vehicles.

Limit on total section 179 deduction, special depreciation allowance, and depreciation deduction.

Cost of car.

Basis of car for depreciation.

When to elect.

How to elect.

Revoking an election.

Recapture of section 179 deduction.

Dispositions.

Combined depreciation.

Qualified car.

Election not to claim the special depreciation allowance.

Placed in service.

Car placed in service and disposed of in the same year.

Methods of depreciation.

More-than-50%-use test.

Qualified business use.

Use of your car by another person.

Business use changes.

Use for more than one purpose.

Change from personal to business use.

Unadjusted basis.

Improvements.

Car trade-in.

Effect of trade-in on basis.

Traded car used only for business.

Traded car used partly in business.

Modified Accelerated Cost Recovery System (MACRS).

Recovery period.

Depreciation methods.

MACRS depreciation chart.

Depreciation in future years.

Disposition of car during recovery period.

How to use the 2023 chart.

Trucks and vans.

Car used less than full year.

Reduction for personal use.

Section 179 deduction.

Deductions in years after the recovery period.

Unrecovered basis.

The recovery period.

How to treat unrecovered basis.

• Table 4-1. 2023 MACRS Depreciation Chart      (Use To Figure Depreciation for 2023)

Qualified business use 50% or less in year placed in service.

Qualified business use 50% or less in a later year.

Excess depreciation.

Deductible payments.

Fair market value.

Figuring the inclusion amount.

Leased car changed from business to personal use.

Leased car changed from personal to business use.

Reporting inclusion amounts.

Casualty or theft.

Depreciation adjustment when you used the standard mileage rate.

Depreciation deduction for the year of disposition.

Documentary evidence.

Adequate evidence.

Canceled check.

Duplicate information.

Timely kept records.

Proving business purpose.

Confidential information.

Exceptional circumstances.

Destroyed records.

Separating expenses.

Combining items.

Car expenses.

Gift expenses.

Allocating total cost.

If your return is examined.

Reimbursed for expenses.

Examples of Records

Self-employed.

Both self-employed and an employee.

Statutory employees.

Reimbursement for personal expenses.

Income-producing property.

Value reported on Form W-2.

Full value included in your income.

Less than full value included in your income.

No reimbursement.

Reimbursement, allowance, or advance.

Reasonable period of time.

Employee meets accountable plan rules.

Accountable plan rules not met.

Failure to return excess reimbursements.

Reimbursement of nondeductible expenses.

Adequate Accounting

Related to employer.

The federal rate.

Regular federal per diem rate.

The standard meal allowance.

High-low rate.

Prorating the standard meal allowance on partial days of travel.

The standard mileage rate.

Fixed and variable rate (FAVR).

Reporting your expenses with a per diem or car allowance.

Allowance less than or equal to the federal rate.

Allowance more than the federal rate.

Travel advance.

Unproven amounts.

Per diem allowance more than federal rate.

Reporting your expenses under a nonaccountable plan.

Adequate accounting.

How to report.

Contractor adequately accounts.

Contractor doesn’t adequately account.

High-low method.

Regular federal per diem rate method.

Federal per diem rate method.

Information on use of cars.

Standard mileage rate.

Actual expenses.

Car rentals.

Transportation expenses.

Employee business expenses other than nonentertainment meals.

Non-entertainment-related meal expenses.

“Hours of service” limits.

Reimbursements.

Allocating your reimbursement.

After you complete the form.

Limits on employee business expenses.

1. Limit on meals and entertainment.

2. Limit on total itemized deductions.

Member of a reserve component.

Officials Paid on a Fee Basis

Special rules for married persons.

Where to report.

Impairment-Related Work Expenses of Disabled Employees

Preparing and filing your tax return.

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What Is TAS?

How can you learn about your taxpayer rights, what can tas do for you, how can you reach tas, how else does tas help taxpayers, low income taxpayer clinics (litcs), appendix a-1. inclusion amounts for passenger automobiles first leased in 2018, appendix a-2. inclusion amounts for passenger automobiles first leased in 2019, appendix a-3. inclusion amounts for passenger automobiles first leased in 2020, appendix a-4. inclusion amounts for passenger automobiles first leased in 2021, appendix a-5. inclusion amounts for passenger automobiles first leased in 2022, appendix a-6. inclusion amounts for passenger automobiles first leased in 2023, publication 463 - additional material, publication 463 (2023), travel, gift, and car expenses.

For use in preparing 2023 Returns

Publication 463 - Introductory Material

For the latest information about developments related to Pub. 463, such as legislation enacted after it was published, go to IRS.gov/Pub463 .

Standard mileage rate. For 2023, the standard mileage rate for the cost of operating your car for business use is 65.5 cents ($0.655) per mile. Car expenses and use of the standard mileage rate are explained in chapter 4.

Depreciation limits on cars, trucks, and vans. The first-year limit on the depreciation deduction, special depreciation allowance, and section 179 deduction for vehicles acquired before September 28, 2017, and placed in service during 2023, is $12,200. The first-year limit on depreciation, special depreciation allowance, and section 179 deduction for vehicles acquired after September 27, 2017, and placed in service during 2023 increases to $20,200. If you elect not to claim a special depreciation allowance for a vehicle placed in service in 2023, the amount increases to $12,200. Depreciation limits are explained in chapter 4.

Section 179 deduction. The maximum amount you can elect to deduct for section 179 property (including cars, trucks, and vans) you placed in service in tax years beginning in 2023 is $1,160,000. This limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds $2,890,000. Section 179 deduction is explained in chapter 4.Also, the maximum section 179 expense deduction for sport utility vehicles placed in service in tax years beginning in 2023 is $28,900.

Temporary deduction of 100% business meals. The 100% deduction on certain business meals expenses as amended under the Taxpayer Certainty and Disaster Tax Relief Act of 2020, and enacted by the Consolidated Appropriations Act, 2021, has expired. Generally, the cost of business meals remains deductible, subject to the 50% limitation. See 50% Limit in chapter 2 for more information.

Photographs of missing children. The IRS is a proud partner with the National Center for Missing & Exploited Children® (NCMEC) . Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 800-THE-LOST (800-843-5678) if you recognize a child.

Per diem rates. Current and prior per diem rates may be found on the U.S. General Services Administration (GSA) website at GSA.gov/travel/plan-book/per-diem-rates .

Introduction

You may be able to deduct the ordinary and necessary business-related expenses you have for:

Non-entertainment-related meals,

Transportation.

This publication explains:

What expenses are deductible,

How to report them on your return,

What records you need to prove your expenses, and

How to treat any expense reimbursements you may receive.

You should read this publication if you are an employee or a sole proprietor who has business-related travel, non-entertainment-related meals, gift, or transportation expenses.

If an employer-provided vehicle was available for your use, you received a fringe benefit. Generally, your employer must include the value of the use or availability of the vehicle in your income. However, there are exceptions if the use of the vehicle qualifies as a working condition fringe benefit (such as the use of a qualified nonpersonal use vehicle).

A working condition fringe benefit is any property or service provided to you by your employer, the cost of which would be allowable as an employee business expense deduction if you had paid for it.

A qualified nonpersonal use vehicle is one that isn’t likely to be used more than minimally for personal purposes because of its design. See Qualified nonpersonal use vehicles under Actual Car Expenses in chapter 4.

For information on how to report your car expenses that your employer didn’t provide or reimburse you for (such as when you pay for gas and maintenance for a car your employer provides), see Vehicle Provided by Your Employer in chapter 6.

Partnerships, corporations, trusts, and employers who reimburse their employees for business expenses should refer to the instructions for their required tax forms, for information on deducting travel, meals, and entertainment expenses.

If you are an employee, you won’t need to read this publication if all of the following are true.

You fully accounted to your employer for your work-related expenses.

You received full reimbursement for your expenses.

Your employer required you to return any excess reimbursement and you did so.

There is no amount shown with a code L in box 12 of your Form W-2, Wage and Tax Statement.

If you perform services as a volunteer worker for a qualified charity, you may be able to deduct some of your costs as a charitable contribution. See Out-of-Pocket Expenses in Giving Services in Pub. 526, Charitable Contributions, for information on the expenses you can deduct.

We welcome your comments about this publication and suggestions for future editions.

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Although we can’t respond individually to each comment received, we do appreciate your feedback and will consider your comments and suggestions as we revise our tax forms, instructions, and publications. Don’t send tax questions, tax returns, or payments to the above address.

If you have a tax question not answered by this publication or the How To Get Tax Help section at the end of this publication, go to the IRS Interactive Tax Assistant page at IRS.gov/Help/ITA where you can find topics by using the search feature or viewing the categories listed.

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Useful Items

Publication

946 How To Depreciate Property

Form (and Instructions)

Schedule A (Form 1040) Itemized Deductions

Schedule C (Form 1040) Profit or Loss From Business (Sole Proprietorship)

Schedule F (Form 1040) Profit or Loss From Farming

2106 Employee Business Expenses

4562 Depreciation and Amortization (Including Information on Listed Property)

See How To Get Tax Help for information about getting these publications and forms.

If you temporarily travel away from your tax home, you can use this chapter to determine if you have deductible travel expenses.

This chapter discusses:

Traveling away from home,

Temporary assignment or job, and

What travel expenses are deductible.

For tax purposes, travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job.

An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your business. An expense doesn’t have to be required to be considered necessary.

You will find examples of deductible travel expenses in Table 1-1 .

Traveling Away From Home

You are traveling away from home if:

Your duties require you to be away from the general area of your tax home (defined later) substantially longer than an ordinary day's work, and

You need to sleep or rest to meet the demands of your work while away from home.

You are a railroad conductor. You leave your home terminal on a regularly scheduled round-trip run between two cities and return home 16 hours later. During the run, you have 6 hours off at your turnaround point where you eat two meals and rent a hotel room to get necessary sleep before starting the return trip. You are considered to be away from home.

You are a truck driver. You leave your terminal and return to it later the same day. You get an hour off at your turnaround point to eat. Because you aren’t off to get necessary sleep and the brief time off isn’t an adequate rest period, you aren’t traveling away from home.

If you are a member of the U.S. Armed Forces on a permanent duty assignment overseas, you aren’t traveling away from home. You can’t deduct your expenses for meals and lodging. You can’t deduct these expenses even if you have to maintain a home in the United States for your family members who aren’t allowed to accompany you overseas. If you are transferred from one permanent duty station to another, you may have deductible moving expenses, which are explained in Pub. 3, Armed Forces' Tax Guide.

A naval officer assigned to permanent duty aboard a ship that has regular eating and living facilities has a tax home (explained next) aboard the ship for travel expense purposes.

To determine whether you are traveling away from home, you must first determine the location of your tax home.

Generally, your tax home is your regular place of business or post of duty, regardless of where you maintain your family home. It includes the entire city or general area in which your business or work is located.

If you have more than one regular place of business, your tax home is your main place of business. See Main place of business or work , later.

If you don’t have a regular or a main place of business because of the nature of your work, then your tax home may be the place where you regularly live. See No main place of business or work , later.

If you don’t have a regular or main place of business or post of duty and there is no place where you regularly live, you are considered an itinerant (a transient) and your tax home is wherever you work. As an itinerant, you can’t claim a travel expense deduction because you are never considered to be traveling away from home.

If you have more than one place of work, consider the following when determining which one is your main place of business or work.

The total time you ordinarily spend in each place.

The level of your business activity in each place.

Whether your income from each place is significant or insignificant.

You live in Cincinnati where you have a seasonal job for 8 months each year and earn $40,000. You work the other 4 months in Miami, also at a seasonal job, and earn $15,000. Cincinnati is your main place of work because you spend most of your time there and earn most of your income there.

You may have a tax home even if you don’t have a regular or main place of work. Your tax home may be the home where you regularly live.

If you don’t have a regular or main place of business or work, use the following three factors to determine where your tax home is.

You perform part of your business in the area of your main home and use that home for lodging while doing business in the area.

You have living expenses at your main home that you duplicate because your business requires you to be away from that home.

You haven’t abandoned the area in which both your historical place of lodging and your claimed main home are located; you have a member or members of your family living at your main home; or you often use that home for lodging.

If you satisfy all three factors, your tax home is the home where you regularly live. If you satisfy only two factors, you may have a tax home depending on all the facts and circumstances. If you satisfy only one factor, you are an itinerant; your tax home is wherever you work and you can’t deduct travel expenses.

You are single and live in Boston in an apartment you rent. You have worked for your employer in Boston for a number of years. Your employer enrolls you in a 12-month executive training program. You don’t expect to return to work in Boston after you complete your training.

During your training, you don’t do any work in Boston. Instead, you receive classroom and on-the-job training throughout the United States. You keep your apartment in Boston and return to it frequently. You use your apartment to conduct your personal business. You also keep up your community contacts in Boston. When you complete your training, you are transferred to Los Angeles.

You don’t satisfy factor (1) because you didn’t work in Boston. You satisfy factor (2) because you had duplicate living expenses. You also satisfy factor (3) because you didn’t abandon your apartment in Boston as your main home, you kept your community contacts, and you frequently returned to live in your apartment. Therefore, you have a tax home in Boston.

You are an outside salesperson with a sales territory covering several states. Your employer's main office is in Newark, but you don’t conduct any business there. Your work assignments are temporary, and you have no way of knowing where your future assignments will be located. You have a room in your married sister's house in Dayton. You stay there for one or two weekends a year, but you do no work in the area. You don’t pay your sister for the use of the room.

You don’t satisfy any of the three factors listed earlier. You are an itinerant and have no tax home.

If you (and your family) don’t live at your tax home (defined earlier), you can’t deduct the cost of traveling between your tax home and your family home. You also can’t deduct the cost of meals and lodging while at your tax home. See Example 1 , later.

If you are working temporarily in the same city where you and your family live, you may be considered as traveling away from home. See Example 2 , later.

You are a truck driver and you and your family live in Tucson. You are employed by a trucking firm that has its terminal in Phoenix. At the end of your long runs, you return to your home terminal in Phoenix and spend one night there before returning home. You can’t deduct any expenses you have for meals and lodging in Phoenix or the cost of traveling from Phoenix to Tucson. This is because Phoenix is your tax home.

Your family home is in Pittsburgh, where you work 12 weeks a year. The rest of the year you work for the same employer in Baltimore. In Baltimore, you eat in restaurants and sleep in a rooming house. Your salary is the same whether you are in Pittsburgh or Baltimore.

Because you spend most of your working time and earn most of your salary in Baltimore, that city is your tax home. You can’t deduct any expenses you have for meals and lodging there. However, when you return to work in Pittsburgh, you are away from your tax home even though you stay at your family home. You can deduct the cost of your round trip between Baltimore and Pittsburgh. You can also deduct your part of your family's living expenses for non-entertainment-related meals and lodging while you are living and working in Pittsburgh.

Temporary Assignment or Job

You may regularly work at your tax home and also work at another location. It may not be practical to return to your tax home from this other location at the end of each workday.

If your assignment or job away from your main place of work is temporary, your tax home doesn’t change. You are considered to be away from home for the whole period you are away from your main place of work. You can deduct your travel expenses if they otherwise qualify for deduction. Generally, a temporary assignment in a single location is one that is realistically expected to last (and does in fact last) for 1 year or less.

However, if your assignment or job is indefinite, the location of the assignment or job becomes your new tax home and you can’t deduct your travel expenses while there. An assignment or job in a single location is considered indefinite if it is realistically expected to last for more than 1 year, whether or not it actually lasts for more than 1 year.

If your assignment is indefinite, you must include in your income any amounts you receive from your employer for living expenses, even if they are called “travel allowances” and you account to your employer for them. You may be able to deduct the cost of relocating to your new tax home as a moving expense. See Pub. 3 for more information.

If you are a federal employee participating in a federal crime investigation or prosecution, you aren’t subject to the 1-year rule. This means you may be able to deduct travel expenses even if you are away from your tax home for more than 1 year provided you meet the other requirements for deductibility.

For you to qualify, the Attorney General (or their designee) must certify that you are traveling:

For the federal government;

In a temporary duty status; and

To investigate, prosecute, or provide support services for the investigation or prosecution of a federal crime.

You must determine whether your assignment is temporary or indefinite when you start work. If you expect an assignment or job to last for 1 year or less, it is temporary unless there are facts and circumstances that indicate otherwise. An assignment or job that is initially temporary may become indefinite due to changed circumstances. A series of assignments to the same location, all for short periods but that together cover a long period, may be considered an indefinite assignment.

The following examples illustrate whether an assignment or job is temporary or indefinite.

You are a construction worker. You live and regularly work in Los Angeles. You are a member of a trade union in Los Angeles that helps you get work in the Los Angeles area. Your tax home is Los Angeles. Because of a shortage of work, you took a job on a construction project in Fresno. Your job was scheduled to end in 8 months. The job actually lasted 10 months.

You realistically expected the job in Fresno to last 8 months. The job actually did last less than 1 year. The job is temporary and your tax home is still in Los Angeles.

The facts are the same as in Example 1 , except that you realistically expected the work in Fresno to last 18 months. The job was actually completed in 10 months.

Your job in Fresno is indefinite because you realistically expected the work to last longer than 1 year, even though it actually lasted less than 1 year. You can’t deduct any travel expenses you had in Fresno because Fresno became your tax home.

The facts are the same as in Example 1 , except that you realistically expected the work in Fresno to last 9 months. After 8 months, however, you were asked to remain for 7 more months (for a total actual stay of 15 months).

Initially, you realistically expected the job in Fresno to last for only 9 months. However, due to changed circumstances occurring after 8 months, it was no longer realistic for you to expect that the job in Fresno would last for 1 year or less. You can deduct only your travel expenses for the first 8 months. You can’t deduct any travel expenses you had after that time because Fresno became your tax home when the job became indefinite.

If you go back to your tax home from a temporary assignment on your days off, you aren’t considered away from home while you are in your hometown. You can’t deduct the cost of your meals and lodging there. However, you can deduct your travel expenses, including meals and lodging, while traveling between your temporary place of work and your tax home. You can claim these expenses up to the amount it would have cost you to stay at your temporary place of work.

If you keep your hotel room during your visit home, you can deduct the cost of your hotel room. In addition, you can deduct your expenses of returning home up to the amount you would have spent for meals had you stayed at your temporary place of work.

If you take a job that requires you to move, with the understanding that you will keep the job if your work is satisfactory during a probationary period, the job is indefinite. You can’t deduct any of your expenses for meals and lodging during the probationary period.

What Travel Expenses Are Deductible?

Once you have determined that you are traveling away from your tax home, you can determine what travel expenses are deductible.

You can deduct ordinary and necessary expenses you have when you travel away from home on business. The type of expense you can deduct depends on the facts and your circumstances.

Table 1-1 summarizes travel expenses you may be able to deduct. You may have other deductible travel expenses that aren’t covered there, depending on the facts and your circumstances.

If you have one expense that includes the costs of non-entertainment-related meals, entertainment, and other services (such as lodging or transportation), you must allocate that expense between the cost of non-entertainment-related meals, and entertainment and the cost of other services. You must have a reasonable basis for making this allocation. For example, you must allocate your expenses if a hotel includes one or more meals in its room charge.

If a spouse, dependent, or other individual goes with you (or your employee) on a business trip or to a business convention, you generally can’t deduct their travel expenses.

You can deduct the travel expenses of someone who goes with you if that person:

Is your employee,

Has a bona fide business purpose for the travel, and

Would otherwise be allowed to deduct the travel expenses.

If a business associate travels with you and meets the conditions in (2) and (3) above, you can deduct the travel expenses you have for that person. A business associate is someone with whom you could reasonably expect to actively conduct business. A business associate can be a current or prospective (likely to become) customer, client, supplier, employee, agent, partner, or professional advisor.

Table 1-1. Travel Expenses You Can Deduct

A bona fide business purpose exists if you can prove a real business purpose for the individual's presence. Incidental services, such as typing notes or assisting in entertaining customers, aren’t enough to make the expenses deductible.

You drive to Chicago on business and take your spouse with you. Your spouse isn’t your employee. Your spouse occasionally types notes, performs similar services, and accompanies you to luncheons and dinners. The performance of these services doesn’t establish that your spouse’s presence on the trip is necessary to the conduct of your business. Your spouse’s expenses aren’t deductible.

You pay $199 a day for a double room. A single room costs $149 a day. You can deduct the total cost of driving your car to and from Chicago, but only $149 a day for your hotel room. If both you and your spouse use public transportation, you can only deduct your fare.

You can deduct a portion of the cost of meals if it is necessary for you to stop for substantial sleep or rest to properly perform your duties while traveling away from home on business. Meal and entertainment expenses are discussed in chapter 2 .

You can't deduct expenses for meals that are lavish or extravagant. An expense isn't considered lavish or extravagant if it is reasonable based on the facts and circumstances. Meal expenses won't be disallowed merely because they are more than a fixed dollar amount or because the meals take place at deluxe restaurants, hotels, or resorts.

You can figure your meal expenses using either of the following methods.

Actual cost.

If you are reimbursed for the cost of your meals, how you apply the 50% limit depends on whether your employer's reimbursement plan was accountable or nonaccountable. If you aren’t reimbursed, the 50% limit applies even if the unreimbursed meal expense is for business travel. Chapter 2 discusses the 50% Limit in more detail, and chapter 6 discusses accountable and nonaccountable plans.

You can use the actual cost of your meals to figure the amount of your expense before reimbursement and application of the 50% deduction limit. If you use this method, you must keep records of your actual cost.

Standard Meal Allowance

Generally, you can use the “standard meal allowance” method as an alternative to the actual cost method. It allows you to use a set amount for your daily meals and incidental expenses (M&IE), instead of keeping records of your actual costs. The set amount varies depending on where and when you travel. In this publication, “standard meal allowance” refers to the federal rate for M&IE, discussed later under Amount of standard meal allowance . If you use the standard meal allowance, you must still keep records to prove the time, place, and business purpose of your travel. See the recordkeeping rules for travel in chapter 5 .

The term “incidental expenses” means fees and tips given to porters, baggage carriers, hotel staff, and staff on ships.

Incidental expenses don’t include expenses for laundry, cleaning and pressing of clothing, lodging taxes, costs of telegrams or telephone calls, transportation between places of lodging or business and places where meals are taken, or the mailing cost of filing travel vouchers and paying employer-sponsored charge card billings.

You can use an optional method (instead of actual cost) for deducting incidental expenses only. The amount of the deduction is $5 a day. You can use this method only if you didn’t pay or incur any meal expenses. You can’t use this method on any day that you use the standard meal allowance. This method is subject to the proration rules for partial days. See Travel for days you depart and return , later, in this chapter.

The incidental-expenses-only method isn’t subject to the 50% limit discussed below.

If you use the standard meal allowance method for non-entertainment-related meal expenses and you aren’t reimbursed or you are reimbursed under a nonaccountable plan, you can generally deduct only 50% of the standard meal allowance. If you are reimbursed under an accountable plan and you are deducting amounts that are more than your reimbursements, you can deduct only 50% of the excess amount. The 50% Limit is discussed in more detail in chapter 2, and accountable and nonaccountable plans are discussed in chapter 6.

You can use the standard meal allowance whether you are an employee or self-employed, and whether or not you are reimbursed for your traveling expenses.

You can use the standard meal allowance to figure your meal expenses when you travel in connection with investment and other income-producing property. You can also use it to figure your meal expenses when you travel for qualifying educational purposes. You can’t use the standard meal allowance to figure the cost of your meals when you travel for medical or charitable purposes.

The standard meal allowance is the federal M&IE rate. For travel in 2023, the rate for most small localities in the United States is $59 per day.

Most major cities and many other localities in the United States are designated as high-cost areas, qualifying for higher standard meal allowances.

If you travel to more than one location in one day, use the rate in effect for the area where you stop for sleep or rest. If you work in the transportation industry, however, see Special rate for transportation workers , later.

Per diem rates are listed by the federal government's fiscal year, which runs from October 1 to September 30. You can choose to use the rates from the 2022 fiscal year per diem tables or the rates from the 2023 fiscal year tables, but you must consistently use the same tables for all travel you are reporting on your income tax return for the year. See Transition Rules , later.

The standard meal allowance rates above don’t apply to travel in Alaska, Hawaii, or any other location outside the continental United States. The Department of Defense establishes per diem rates for Alaska, Hawaii, Puerto Rico, American Samoa, Guam, Midway, the Northern Mariana Islands, the U.S. Virgin Islands, Wake Island, and other non-foreign areas outside the continental United States. The Department of State establishes per diem rates for all other foreign areas.

You can use a special standard meal allowance if you work in the transportation industry. You are in the transportation industry if your work:

Directly involves moving people or goods by airplane, barge, bus, ship, train, or truck; and

Regularly requires you to travel away from home and, during any single trip, usually involves travel to areas eligible for different standard meal allowance rates.

Using the special rate for transportation workers eliminates the need for you to determine the standard meal allowance for every area where you stop for sleep or rest. If you choose to use the special rate for any trip, you must use the special rate (and not use the regular standard meal allowance rates) for all trips you take that year.

For both the day you depart for and the day you return from a business trip, you must prorate the standard meal allowance (figure a reduced amount for each day). You can do so by one of two methods.

Method 1: You can claim 3 / 4 of the standard meal allowance.

Method 2: You can prorate using any method that you consistently apply and that is in accordance with reasonable business practice.

You are employed in New Orleans as a convention planner. In March, your employer sent you on a 3-day trip to Washington, DC, to attend a planning seminar. You left your home in New Orleans at 10 a.m. on Wednesday and arrived in Washington, DC, at 5:30 p.m. After spending 2 nights there, you flew back to New Orleans on Friday and arrived back home at 8 p.m. Your employer gave you a flat amount to cover your expenses and included it with your wages.

Under Method 1 , you can claim 2½ days of the standard meal allowance for Washington, DC: 3 / 4 of the daily rate for Wednesday and Friday (the days you departed and returned), and the full daily rate for Thursday.

Under Method 2 , you could also use any method that you apply consistently and that is in accordance with reasonable business practice. For example, you could claim 3 days of the standard meal allowance even though a federal employee would have to use Method 1 and be limited to only 2½ days.

Travel in the United States

The following discussion applies to travel in the United States. For this purpose, the United States includes the 50 states and the District of Columbia. The treatment of your travel expenses depends on how much of your trip was business related and on how much of your trip occurred within the United States. See Part of Trip Outside the United States , later.

You can deduct all of your travel expenses if your trip was entirely business related. If your trip was primarily for business and, while at your business destination, you extended your stay for a vacation, made a personal side trip, or had other personal activities, you can deduct only your business-related travel expenses. These expenses include the travel costs of getting to and from your business destination and any business-related expenses at your business destination.

You work in Atlanta and take a business trip to New Orleans in May. Your business travel totals 900 miles round trip. On your way home, you stop in Mobile to visit your parents. You spend $2,165 for the 9 days you are away from home for travel, non-entertainment-related meals, lodging, and other travel expenses. If you hadn’t stopped in Mobile, you would have been gone only 6 days, and your total cost would have been $1,633.50. You can deduct $1,633.50 for your trip, including the cost of round-trip transportation to and from New Orleans. The deduction for your non-entertainment-related meals is subject to the 50% limit on meals mentioned earlier.

If your trip was primarily for personal reasons, such as a vacation, the entire cost of the trip is a nondeductible personal expense. However, you can deduct any expenses you have while at your destination that are directly related to your business.

A trip to a resort or on a cruise ship may be a vacation even if the promoter advertises that it is primarily for business. The scheduling of incidental business activities during a trip, such as viewing videotapes or attending lectures dealing with general subjects, won’t change what is really a vacation into a business trip.

Part of Trip Outside the United States

If part of your trip is outside the United States, use the rules described later in this chapter under Travel Outside the United States for that part of the trip. For the part of your trip that is inside the United States, use the rules for travel in the United States. Travel outside the United States doesn’t include travel from one point in the United States to another point in the United States. The following discussion can help you determine whether your trip was entirely within the United States.

If you travel by public transportation, any place in the United States where that vehicle makes a scheduled stop is a point in the United States. Once the vehicle leaves the last scheduled stop in the United States on its way to a point outside the United States, you apply the rules under Travel Outside the United States , later.

You fly from New York to Puerto Rico with a scheduled stop in Miami. Puerto Rico isn’t considered part of the United States for purposes of travel. You return to New York nonstop. The flight from New York to Miami is in the United States, so only the flight from Miami to Puerto Rico is outside the United States. Because there are no scheduled stops between Puerto Rico and New York, all of the return trip is outside the United States.

Travel by private car in the United States is travel between points in the United States, even though you are on your way to a destination outside the United States.

You travel by car from Denver to Mexico City and return. Your travel from Denver to the border and from the border back to Denver is travel in the United States, and the rules in this section apply. The rules below under Travel Outside the United States apply to your trip from the border to Mexico City and back to the border.

Travel Outside the United States

If any part of your business travel is outside the United States, some of your deductions for the cost of getting to and from your destination may be limited. For this purpose, the United States includes the 50 states and the District of Columbia.

How much of your travel expenses you can deduct depends in part upon how much of your trip outside the United States was business related.

Travel Entirely for Business or Considered Entirely for Business

You can deduct all your travel expenses of getting to and from your business destination if your trip is entirely for business or considered entirely for business.

If you travel outside the United States and you spend the entire time on business activities, you can deduct all of your travel expenses.

Even if you didn’t spend your entire time on business activities, your trip is considered entirely for business if you meet at least one of the following four exceptions.

Your trip is considered entirely for business if you didn’t have substantial control over arranging the trip. The fact that you control the timing of your trip doesn’t, by itself, mean that you have substantial control over arranging your trip.

You don’t have substantial control over your trip if you:

Are an employee who was reimbursed or paid a travel expense allowance, and

Aren’t related to your employer, or

Aren’t a managing executive.

“Related to your employer” is defined later in chapter 6 under Per Diem and Car Allowances .

A “managing executive” is an employee who has the authority and responsibility, without being subject to the veto of another, to decide on the need for the business travel.

A self-employed person generally has substantial control over arranging business trips.

Your trip is considered entirely for business if you were outside the United States for a week or less, combining business and nonbusiness activities. One week means 7 consecutive days. In counting the days, don’t count the day you leave the United States, but do count the day you return to the United States.

You traveled to Brussels primarily for business. You left Denver on Tuesday and flew to New York. On Wednesday, you flew from New York to Brussels, arriving the next morning. On Thursday and Friday, you had business discussions, and from Saturday until Tuesday, you were sightseeing. You flew back to New York, arriving Wednesday afternoon. On Thursday, you flew back to Denver.

Although you were away from your home in Denver for more than a week, you weren’t outside the United States for more than a week. This is because the day you depart doesn’t count as a day outside the United States.

You can deduct your cost of the round-trip flight between Denver and Brussels. You can also deduct the cost of your stay in Brussels for Thursday and Friday while you conducted business. However, you can’t deduct the cost of your stay in Brussels from Saturday through Tuesday because those days were spent on nonbusiness activities.

Your trip is considered entirely for business if:

You were outside the United States for more than a week, and

You spent less than 25% of the total time you were outside the United States on nonbusiness activities.

You flew from Seattle to Tokyo, where you spent 14 days on business and 5 days on personal matters. You then flew back to Seattle. You spent 1 day flying in each direction.

Because only 5 / 21 (less than 25%) of your total time abroad was for nonbusiness activities, you can deduct as travel expenses what it would have cost you to make the trip if you hadn’t engaged in any nonbusiness activity. The amount you can deduct is the cost of the round-trip plane fare and 16 days of non-entertainment-related meals (subject to the 50% Limit ), lodging, and other related expenses.

Your trip is considered entirely for business if you can establish that a personal vacation wasn’t a major consideration, even if you have substantial control over arranging the trip.

Travel Primarily for Business

If you travel outside the United States primarily for business but spend some of your time on other activities, you generally can’t deduct all of your travel expenses. You can only deduct the business portion of your cost of getting to and from your destination. You must allocate the costs between your business and other activities to determine your deductible amount. See Travel allocation rules , later.

If your trip outside the United States was primarily for business, you must allocate your travel time on a day-to-day basis between business days and nonbusiness days. The days you depart from and return to the United States are both counted as days outside the United States.

To figure the deductible amount of your round-trip travel expenses, use the following fraction. The numerator (top number) is the total number of business days outside the United States. The denominator (bottom number) is the total number of business and nonbusiness days of travel.

Your business days include transportation days, days your presence was required, days you spent on business, and certain weekends and holidays.

Count as a business day any day you spend traveling to or from a business destination. However, if because of a nonbusiness activity you don’t travel by a direct route, your business days are the days it would take you to travel a reasonably direct route to your business destination. Extra days for side trips or nonbusiness activities can’t be counted as business days.

Count as a business day any day your presence is required at a particular place for a specific business purpose. Count it as a business day even if you spend most of the day on nonbusiness activities.

If your principal activity during working hours is the pursuit of your trade or business, count the day as a business day. Also, count as a business day any day you are prevented from working because of circumstances beyond your control.

Count weekends, holidays, and other necessary standby days as business days if they fall between business days. But if they follow your business meetings or activity and you remain at your business destination for nonbusiness or personal reasons, don’t count them as business days.

Your tax home is New York City. You travel to Quebec, where you have a business meeting on Friday. You have another meeting on the following Monday. Because your presence was required on both Friday and Monday, they are business days. Because the weekend is between business days, Saturday and Sunday are counted as business days. This is true even though you use the weekend for sightseeing, visiting friends, or other nonbusiness activity.

If, in Example 1 , you had no business in Quebec after Friday, but stayed until Monday before starting home, Saturday and Sunday would be nonbusiness days.

If you stopped for a vacation or other nonbusiness activity either on the way from the United States to your business destination, or on the way back to the United States from your business destination, you must allocate part of your travel expenses to the nonbusiness activity.

The part you must allocate is the amount it would have cost you to travel between the point where travel outside the United States begins and your nonbusiness destination and a return to the point where travel outside the United States ends.

You determine the nonbusiness portion of that expense by multiplying it by a fraction. The numerator (top number) of the fraction is the number of nonbusiness days during your travel outside the United States, and the denominator (bottom number) is the total number of days you spend outside the United States.

You live in New York. On May 4, you flew to Paris to attend a business conference that began on May 5. The conference ended at noon on May 14. That evening, you flew to Dublin where you visited with friends until the afternoon of May 21, when you flew directly home to New York. The primary purpose for the trip was to attend the conference.

If you hadn’t stopped in Dublin, you would have arrived home the evening of May 14. You don’t meet any of the exceptions that would allow you to consider your travel entirely for business. May 4 through May 14 (11 days) are business days and May 15 through May 21 (7 days) are nonbusiness days.

You can deduct the cost of your non-entertainment-related meals (subject to the 50% Limit ), lodging, and other business-related travel expenses while in Paris.

You can’t deduct your expenses while in Dublin. You also can’t deduct 7 / 18 of what it would have cost you to travel round trip between New York and Dublin.

You paid $750 to fly from New York to Paris, $400 to fly from Paris to Dublin, and $700 to fly from Dublin back to New York. Round-trip airfare from New York to Dublin would have been $1,250.

You figure the deductible part of your air travel expenses by subtracting 7 / 18 of the round-trip airfare and other expenses you would have had in traveling directly between New York and Dublin ($1,250 × 7 / 18 = $486) from your total expenses in traveling from New York to Paris to Dublin and back to New York ($750 + $400 + $700 = $1,850).

Your deductible air travel expense is $1,364 ($1,850 − $486).

If you had a vacation or other nonbusiness activity at, near, or beyond your business destination, you must allocate part of your travel expenses to the nonbusiness activity.

The part you must allocate is the amount it would have cost you to travel between the point where travel outside the United States begins and your business destination and a return to the point where travel outside the United States ends.

None of your travel expenses for nonbusiness activities at, near, or beyond your business destination are deductible.

Assume that the dates are the same as in the previous example but that instead of going to Dublin for your vacation, you fly to Venice, Italy, for a vacation.

You can’t deduct any part of the cost of your trip from Paris to Venice and return to Paris. In addition, you can’t deduct 7 / 18 of the airfare and other expenses from New York to Paris and back to New York.

You can deduct 11 / 18 of the round-trip plane fare and other travel expenses from New York to Paris, plus your non-entertainment-related meals (subject to the 50% Limit ), lodging, and any other business expenses you had in Paris. (Assume these expenses total $4,939.) If the round-trip plane fare and other travel-related expenses (such as food during the trip) are $1,750, you can deduct travel costs of $1,069 ( 11 / 18 × $1,750), plus the full $4,939 for the expenses you had in Paris.

You can use another method of counting business days if you establish that it more clearly reflects the time spent on other than business activities outside the United States.

If you travel outside the United States primarily for vacation or for investment purposes, the entire cost of the trip is a nondeductible personal expense. However, if you spend some time attending brief professional seminars or a continuing education program, you can deduct your registration fees and other expenses you have that are directly related to your business.

The university from which you graduated has a continuing education program for members of its alumni association. This program consists of trips to various foreign countries where academic exercises and conferences are set up to acquaint individuals in most occupations with selected facilities in several regions of the world. However, none of the conferences are directed toward specific occupations or professions. It is up to each participant to seek out specialists and organizational settings appropriate to their occupational interests.

Three-hour sessions are held each day over a 5-day period at each of the selected overseas facilities where participants can meet with individual practitioners. These sessions are composed of a variety of activities including workshops, mini-lectures, roleplaying, skill development, and exercises. Professional conference directors schedule and conduct the sessions. Participants can choose those sessions they wish to attend.

You can participate in this program because you are a member of the alumni association. You and your family take one of the trips. You spend about 2 hours at each of the planned sessions. The rest of the time you go touring and sightseeing with your family. The trip lasts less than 1 week.

Your travel expenses for the trip aren’t deductible since the trip was primarily a vacation. However, registration fees and any other incidental expenses you have for the five planned sessions you attended that are directly related and beneficial to your business are deductible business expenses. These expenses should be specifically stated in your records to ensure proper allocation of your deductible business expenses.

Luxury Water Travel

If you travel by ocean liner, cruise ship, or other form of luxury water transportation for business purposes, there is a daily limit on the amount you can deduct. The limit is twice the highest federal per diem rate allowable at the time of your travel. (Generally, the federal per diem is the amount paid to federal government employees for daily living expenses when they travel away from home within the United States for business purposes.)

The highest federal per diem rate allowed and the daily limit for luxury water travel in 2023 are shown in the following table.

You are a travel agent and traveled by ocean liner from New York to London, England, on business in May. Your expense for the 6-day cruise was $6,200. Your deduction for the cruise can’t exceed $4,776 (6 days × $796 daily limit).

If your expenses for luxury water travel include separately stated amounts for meals or entertainment, those amounts are subject to the 50% limit on non-entertainment-related meals and entertainment before you apply the daily limit. For a discussion of the 50% Limit , see chapter 2.

In the previous example, your luxury water travel had a total cost of $6,200. Of that amount, $3,700 was separately stated as non-entertainment-related meals and $1,000 was separately stated as entertainment. Considering that you are self-employed, you aren’t reimbursed for any of your travel expenses. You figure your deductible travel expenses as follows.

If your meal or entertainment charges aren’t separately stated or aren’t clearly identifiable, you don’t have to allocate any portion of the total charge to meals or entertainment.

The daily limit on luxury water travel (discussed earlier) doesn’t apply to expenses you have to attend a convention, seminar, or meeting on board a cruise ship. See Cruise Ships , later, under Conventions.

Conventions

You can deduct your travel expenses when you attend a convention if you can show that your attendance benefits your trade or business. You can’t deduct the travel expenses for your family.

If the convention is for investment, political, social, or other purposes unrelated to your trade or business, you can’t deduct the expenses.

The convention agenda or program generally shows the purpose of the convention. You can show your attendance at the convention benefits your trade or business by comparing the agenda with the official duties and responsibilities of your position. The agenda doesn’t have to deal specifically with your official duties and responsibilities; it will be enough if the agenda is so related to your position that it shows your attendance was for business purposes.

Conventions Held Outside the North American Area

You can’t deduct expenses for attending a convention, seminar, or similar meeting held outside the North American area unless:

The meeting is directly related to the active conduct of your trade or business, and

It is as reasonable to hold the meeting outside the North American area as within the North American area. See Reasonableness test , later.

The North American area includes the following locations.

The following factors are taken into account to determine if it was as reasonable to hold the meeting outside the North American area as within the North American area.

The purpose of the meeting and the activities taking place at the meeting.

The purposes and activities of the sponsoring organizations or groups.

The homes of the active members of the sponsoring organizations and the places at which other meetings of the sponsoring organizations or groups have been or will be held.

Other relevant factors you may present.

You can deduct up to $2,000 per year of your expenses of attending conventions, seminars, or similar meetings held on cruise ships. All ships that sail are considered cruise ships.

You can deduct these expenses only if all of the following requirements are met.

The convention, seminar, or meeting is directly related to the active conduct of your trade or business.

The cruise ship is a vessel registered in the United States.

All of the cruise ship's ports of call are in the United States or in territories of the United States.

You attach to your return a written statement signed by you that includes information about:

The total days of the trip (not including the days of transportation to and from the cruise ship port),

The number of hours each day that you devoted to scheduled business activities, and

A program of the scheduled business activities of the meeting.

You attach to your return a written statement signed by an officer of the organization or group sponsoring the meeting that includes:

A schedule of the business activities of each day of the meeting, and

The number of hours you attended the scheduled business activities.

2. Meals and Entertainment

You can no longer take a deduction for any expense related to activities generally considered entertainment, amusement, or recreation. You can continue to deduct 50% of the cost of business meals if you (or your employee) are present and the food or beverages aren't considered lavish or extravagant.

Entertainment

Entertainment—defined.

Entertainment includes any activity generally considered to provide entertainment, amusement, or recreation. Examples include entertaining guests at nightclubs; at social, athletic, and sporting clubs; at theaters; at sporting events; on yachts; or on hunting, fishing, vacation, and similar trips. Entertainment may also include meeting personal, living, or family needs of individuals, such as providing meals, a hotel suite, or a car to customers or their families.

Your kind of business may determine if a particular activity is considered entertainment. For example, if you are a dress designer and have a fashion show to introduce your new designs to store buyers, the show generally isn’t considered entertainment. This is because fashion shows are typical in your business. But, if you are an appliance distributor and hold a fashion show for the spouses of your retailers, the show is generally considered entertainment.

If you have one expense that includes the costs of entertainment and other services (such as lodging or transportation), you must allocate that expense between the cost of entertainment and the cost of other services. You must have a reasonable basis for making this allocation. For example, you must allocate your expenses if a hotel includes entertainment in its lounge on the same bill with your room charge.

In general, entertainment expenses are nondeductible. However, there are a few exceptions to the general rule, including:

Entertainment treated as compensation on your originally filed tax returns (and treated as wages to your employees);

Recreational expenses for employees such as a holiday party or a summer picnic;

Expenses related to attending business meetings or conventions of certain exempt organizations such as business leagues, chambers of commerce, professional associations, etc.; and

Entertainment sold to customers. For example, if you run a nightclub, your expenses for the entertainment you furnish to your customers, such as a floor show, aren’t subject to the nondeductible rules.

Examples of Nondeductible Entertainment

Generally, you can't deduct any expense for an entertainment event. This includes expenses for entertaining guests at nightclubs; at social, athletic, and sporting clubs; at theaters; at sporting events; on yachts; or on hunting, fishing, vacation, and similar trips.

Generally, you can’t deduct any expense for the use of an entertainment facility. This includes expenses for depreciation and operating costs such as rent, utilities, maintenance, and protection.

An entertainment facility is any property you own, rent, or use for entertainment. Examples include a yacht, hunting lodge, fishing camp, swimming pool, tennis court, bowling alley, car, airplane, apartment, hotel suite, or home in a vacation resort.

You can’t deduct dues (including initiation fees) for membership in any club organized for business, pleasure, recreation, or other social purposes.

This rule applies to any membership organization if one of its principal purposes is either:

To conduct entertainment activities for members or their guests; or

To provide members or their guests with access to entertainment facilities, discussed later.

The purposes and activities of a club, not its name, will determine whether or not you can deduct the dues. You can’t deduct dues paid to:

Country clubs,

Golf and athletic clubs,

Airline clubs,

Hotel clubs, and

Clubs operated to provide meals under circumstances generally considered to be conducive to business discussions.

Any item that might be considered either a gift or entertainment will generally be considered entertainment. However, if you give a customer packaged food or beverages that you intend the customer to use at a later date, treat it as a gift.

As discussed above, entertainment expenses are generally nondeductible. However, you may continue to deduct 50% of the cost of business meals if you (or an employee) is present and the food or beverages are not considered lavish or extravagant. The meals may be provided to a current or potential business customer, client, consultant, or similar business contact.

Food and beverages that are provided during entertainment events are not considered entertainment if purchased separately from the entertainment, or if the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts. However, the entertainment disallowance rule may not be circumvented through inflating the amount charged for food and beverages.

Any allowed expense must be ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your business. An expense doesn't have to be required to be considered necessary. Expenses must not be lavish or extravagant. An expense isn't considered lavish or extravagant if it is reasonable based on the facts and circumstances.

For each example, assume that the food and beverage expenses are ordinary and necessary expenses under section 162(a) paid or incurred during the tax year in carrying on a trade or business and are not lavish or extravagant under the circumstances. Also assume that the taxpayer and the business contact are not engaged in a trade or business that has any relation to the entertainment activity.

Taxpayer A invites B, a business contact, to a baseball game. A purchases tickets for A and B to attend the game. While at the game, A buys hot dogs and drinks for A and B. The baseball game is entertainment as defined in Regulations section 1.274-11(b)(1)(i) and, thus, the cost of the game tickets is an entertainment expense and is not deductible by A. The cost of the hot dogs and drinks, which are purchased separately from the game tickets, is not an entertainment expense and is not subject to the section 274(a)(1) disallowance. Therefore, A may deduct 50% of the expenses associated with the hot dogs and drinks purchased at the game.

Taxpayer C invites D, a business contact, to a basketball game. C purchases tickets for C and D to attend the game in a suite, where they have access to food and beverages. The cost of the basketball game tickets, as stated on the invoice, includes the food and beverages. The basketball game is entertainment as defined in Regulations section 1.274-11(b)(1)(i) and, thus, the cost of the game tickets is an entertainment expense and is not deductible by C. The cost of the food and beverages, which are not purchased separately from the game tickets, is not stated separately on the invoice. Thus, the cost of the food and beverages is also an entertainment expense that is subject to the section 274(a)(1) disallowance. Therefore, C may not deduct any of the expenses associated with the basketball game.

Assume the same facts as in Example 2 , except that the invoice for the basketball game tickets separately states the cost of the food and beverages. As in Example 2 , the basketball game is entertainment as defined in Regulations section 1.274-2(b)(1)(i) and, thus, the cost of the game tickets, other than the cost of the food and beverages, is an entertainment expense and is not deductible by C. However, the cost of the food and beverages, which is stated separately on the invoice for the game tickets, is not an entertainment expense and is not subject to the section 274(a)(1) disallowance. Therefore, C may deduct 50% of the expenses associated with the food and beverages provided at the game.

In general, you can deduct only 50% of your business-related meal expenses, unless an exception applies. (If you are subject to the Department of Transportation's “hours of service” limits, you can deduct 80% of your business-related meal expenses. See Individuals subject to hours of service limits , later.)

The 50% limit applies to employees or their employers, and to self-employed persons (including independent contractors) or their clients, depending on whether the expenses are reimbursed.

Examples of meals might include:

Meals while traveling away from home (whether eating alone or with others) on business, or

Meal at a business convention or business league meeting.

Figure A. Does the 50% Limit Apply to Your Expenses?

There are exceptions to these rules. See Exceptions to the 50% Limit for Meals , later.

Figure A. Does the 50% limit apply to Your Expenses?TAs for Figure A are: Notice 87-23; Form 2106 instructions

Summary: This is a flowchart used to determine if employees and self-employed persons need to put a 50% limit on their business expense deductions.

This is the starting of the flowchart.

Decision (1)

Were your meal and entertainment expenses reimbursed? (Count only reimbursements your employer didn’t include in box 1 of your Form W-2. If self-employed, count only reimbursements from clients or customers that aren’t included on Form 1099-MISC, Miscellaneous Income.)

Decision (2)

If an employee, did you adequately account to your employer under an accountable plan? If self-employed, did you provide the payer with adequate records? (See Chapter 6.)

Decision (3)

Did your expenses exceed the reimbursement?

Decision (4)

Process (a)

Your meal and entertainment expenses are NOT subject to the limitations. However, since the reimbursement wasn’t treated as wages or as other taxable income, you can’t deduct the expenses.

Process (b)

Your nonentertainment meal expenses ARE subject to the 50% limit. Your entertainment expenses are nondeductible.

This is the ending of the flowchart.

Please click here for the text description of the image.

Taxes and tips relating to a business meal are included as a cost of the meal and are subject to the 50% limit. However, the cost of transportation to and from the meal is not treated as part of the cost and would not be subject to the limit.

The 50% limit on meal expenses applies if the expense is otherwise deductible and isn’t covered by one of the exceptions discussed later. Figure A can help you determine if the 50% limit applies to you.

The 50% limit also applies to certain meal expenses that aren’t business related. It applies to meal expenses you have for the production of income, including rental or royalty income. It also applies to the cost of meals included in deductible educational expenses.

The 50% limit will apply after determining the amount that would otherwise qualify for a deduction. You first have to determine the amount of meal expenses that would be deductible under the other rules discussed in this publication.

If a group of business acquaintances takes turns picking up each others' meal checks primarily for personal reasons, without regard to whether any business purposes are served, no member of the group can deduct any part of the expense.

You spend $200 (including tax and tip) for a business meal. If $110 of that amount isn’t allowable because it is lavish and extravagant, the remaining $90 is subject to the 50% limit. Your deduction can’t be more than $45 (50% (0.50) × $90).

You purchase two tickets to a concert for $200 for you and your client. Your deduction is zero because no deduction is allowed for entertainment expenses.

Exception to the 50% Limit for Meals

Your meal expense isn’t subject to the 50% limit if the expense meets one of the following exceptions.

In general, expenses for goods, services, and facilities, to the extent the expenses are treated by the taxpayer, with respect to entertainment, amusement, or recreation, as compensation to an employee and as wages to the employee for tax purposes.

If you are an employee, you aren’t subject to the 50% limit on expenses for which your employer reimburses you under an accountable plan. Accountable plans are discussed in chapter 6.

If you are self-employed, your deductible meal expenses aren’t subject to the 50% limit if all of the following requirements are met.

You have these expenses as an independent contractor.

Your customer or client reimburses you or gives you an allowance for these expenses in connection with services you perform.

You provide adequate records of these expenses to your customer or client. (See chapter 5 .)

In this case, your client or customer is subject to the 50% limit on the expenses.

You are a self-employed attorney who adequately accounts for meal expenses to a client who reimburses you for these expenses. You aren’t subject to the limitation on meal expenses. If the client can deduct the expenses, the client is subject to the 50% limit.

If you (as an independent contractor) have expenses for meals related to providing services for a client but don’t adequately account for and seek reimbursement from the client for those expenses, you are subject to the 50% limit on non-entertainment-related meals and the entertainment-related meal expenses are nondeductible to you.

You aren't subject to the 50% limit for expenses for recreational, social, or similar activities (including facilities) such as a holiday party or a summer picnic.

You aren’t subject to the 50% limit if you provide meals to the general public as a means of advertising or promoting goodwill in the community. For example, neither the expense of sponsoring a television or radio show nor the expense of distributing free food and beverages to the general public is subject to the 50% limit.

You aren’t subject to the 50% limit if you actually sell meals to the public. For example, if you run a restaurant, your expense for the food you furnish to your customers isn’t subject to the 50% limit.

You can deduct a higher percentage of your meal expenses while traveling away from your tax home if the meals take place during or incident to any period subject to the Department of Transportation's “hours of service” limits. The percentage is 80%.

Individuals subject to the Department of Transportation's “hours of service” limits include the following persons.

Certain air transportation workers (such as pilots, crew, dispatchers, mechanics, and control tower operators) who are under Federal Aviation Administration regulations.

Interstate truck operators and bus drivers who are under Department of Transportation regulations.

Certain railroad employees (such as engineers, conductors, train crews, dispatchers, and control operations personnel) who are under Federal Railroad Administration regulations.

Certain merchant mariners who are under Coast Guard regulations.

If you give gifts in the course of your trade or business, you may be able to deduct all or part of the cost. This chapter explains the limits and rules for deducting the costs of gifts.

You can deduct no more than $25 for business gifts you give directly or indirectly to each person during your tax year. A gift to a company that is intended for the eventual personal use or benefit of a particular person or a limited class of people will be considered an indirect gift to that particular person or to the individuals within that class of people who receive the gift.

If you give a gift to a member of a customer's family, the gift is generally considered to be an indirect gift to the customer. This rule doesn’t apply if you have a bona fide, independent business connection with that family member and the gift isn’t intended for the customer's eventual use.

If you and your spouse both give gifts, both of you are treated as one taxpayer. It doesn’t matter whether you have separate businesses, are separately employed, or whether each of you has an independent connection with the recipient. If a partnership gives gifts, the partnership and the partners are treated as one taxpayer.

You sell products to a local company. You and your spouse gave the local company three gourmet gift baskets to thank them for their business. You and your spouse paid $80 for each gift basket, or $240 total. Three of the local company's executives took the gift baskets home for their families' use. You and your spouse have no independent business relationship with any of the executives' other family members. You and your spouse can deduct a total of $75 ($25 limit × 3) for the gift baskets.

Incidental costs, such as engraving on jewelry, or packaging, insuring, and mailing, are generally not included in determining the cost of a gift for purposes of the $25 limit.

A cost is incidental only if it doesn’t add substantial value to the gift. For example, the cost of gift wrapping is an incidental cost. However, the purchase of an ornamental basket for packaging fruit isn’t an incidental cost if the value of the basket is substantial compared to the value of the fruit.

The following items aren’t considered gifts for purposes of the $25 limit.

An item that costs $4 or less and:

Has your name clearly and permanently imprinted on the gift, and

Is one of a number of identical items you widely distribute. Examples include pens, desk sets, and plastic bags and cases.

Signs, display racks, or other promotional material to be used on the business premises of the recipient.

Figure B. When Are Transportation Expenses Deductible?

Most employees and self-employed persons can use this chart. (Don’t use this chart if your home is your principal place of business. See Office in the home , later.)

Figure B. When Are Local Transportation Expenses Deductible?TAs for Figure B are: Reg 1.162-1(a); RR 55–109; RR 94–47

Summary: This illustration depicts the rules used to determine if transportation expenses are deductible.

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Any item that might be considered either a gift or entertainment will generally be considered entertainment. However, if you give a customer packaged food or beverages you intend the customer to use at a later date, treat it as a gift.

4. Transportation

This chapter discusses expenses you can deduct for business transportation when you aren’t traveling away from home , as defined in chapter 1. These expenses include the cost of transportation by air, rail, bus, taxi, etc., and the cost of driving and maintaining your car.

Transportation expenses include the ordinary and necessary costs of all of the following.

Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home. Tax home is defined in chapter 1.

Visiting clients or customers.

Going to a business meeting away from your regular workplace.

Getting from your home to a temporary workplace when you have one or more regular places of work. These temporary workplaces can be either within the area of your tax home or outside that area.

Daily transportation expenses you incur while traveling from home to one or more regular places of business are generally nondeductible commuting expenses. However, there may be exceptions to this general rule. You can deduct daily transportation expenses incurred going between your residence and a temporary work station outside the metropolitan area where you live. Also, daily transportation expenses can be deducted if (1) you have one or more regular work locations away from your residence; or (2) your residence is your principal place of business and you incur expenses going between the residence and another work location in the same trade or business, regardless of whether the work is temporary or permanent and regardless of the distance.

Illustration of transportation expenses.

Figure B above illustrates the rules that apply for deducting transportation expenses when you have a regular or main job away from your home. You may want to refer to it when deciding whether you can deduct your transportation expenses.

If you have one or more regular work locations away from your home and you commute to a temporary work location in the same trade or business, you can deduct the expenses of the daily round-trip transportation between your home and the temporary location, regardless of distance.

If your employment at a work location is realistically expected to last (and does in fact last) for 1 year or less, the employment is temporary unless there are facts and circumstances that would indicate otherwise.

If your employment at a work location is realistically expected to last for more than 1 year or if there is no realistic expectation that the employment will last for 1 year or less, the employment isn’t temporary, regardless of whether it actually lasts for more than 1 year.

If employment at a work location initially is realistically expected to last for 1 year or less, but at some later date the employment is realistically expected to last more than 1 year, that employment will be treated as temporary (unless there are facts and circumstances that would indicate otherwise) until your expectation changes. It won’t be treated as temporary after the date you determine it will last more than 1 year.

If the temporary work location is beyond the general area of your regular place of work and you stay overnight, you are traveling away from home. You may have deductible travel expenses, as discussed in chapter 1 .

If you have no regular place of work but ordinarily work in the metropolitan area where you live, you can deduct daily transportation costs between home and a temporary work site outside that metropolitan area.

Generally, a metropolitan area includes the area within the city limits and the suburbs that are considered part of that metropolitan area.

You can’t deduct daily transportation costs between your home and temporary work sites within your metropolitan area. These are nondeductible commuting expenses.

If you work at two places in 1 day, whether or not for the same employer, you can deduct the expense of getting from one workplace to the other. However, if for some personal reason you don’t go directly from one location to the other, you can’t deduct more than the amount it would have cost you to go directly from the first location to the second.

Transportation expenses you have in going between home and a part-time job on a day off from your main job are commuting expenses. You can’t deduct them.

A meeting of an Armed Forces reserve unit is a second place of business if the meeting is held on a day on which you work at your regular job. You can deduct the expense of getting from one workplace to the other as just discussed under Two places of work .

You usually can’t deduct the expense if the reserve meeting is held on a day on which you don’t work at your regular job. In this case, your transportation is generally a nondeductible commuting expense. However, you can deduct your transportation expenses if the location of the meeting is temporary and you have one or more regular places of work.

If you ordinarily work in a particular metropolitan area but not at any specific location and the reserve meeting is held at a temporary location outside that metropolitan area, you can deduct your transportation expenses.

If you travel away from home overnight to attend a guard or reserve meeting, you can deduct your travel expenses. These expenses are discussed in chapter 1 .

If you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you may be able to deduct some of your reserve-related travel costs as an adjustment to gross income rather than as an itemized deduction. For more information, see Armed Forces Reservists Traveling More Than 100 Miles From Home under Special Rules in chapter 6.

You can’t deduct the costs of taking a bus, trolley, subway, or taxi, or of driving a car between your home and your main or regular place of work. These costs are personal commuting expenses. You can’t deduct commuting expenses no matter how far your home is from your regular place of work. You can’t deduct commuting expenses even if you work during the commuting trip.

You sometimes use your cell phone to make business calls while commuting to and from work. Sometimes business associates ride with you to and from work, and you have a business discussion in the car. These activities don’t change the trip from personal to business. You can’t deduct your commuting expenses.

Fees you pay to park your car at your place of business are nondeductible commuting expenses. You can, however, deduct business-related parking fees when visiting a customer or client.

Putting display material that advertises your business on your car doesn’t change the use of your car from personal use to business use. If you use this car for commuting or other personal uses, you still can’t deduct your expenses for those uses.

You can’t deduct the cost of using your car in a nonprofit car pool. Don’t include payments you receive from the passengers in your income. These payments are considered reimbursements of your expenses. However, if you operate a car pool for a profit, you must include payments from passengers in your income. You can then deduct your car expenses (using the rules in this publication).

Hauling tools or instruments in your car while commuting to and from work doesn’t make your car expenses deductible. However, you can deduct any additional costs you have for hauling tools or instruments (such as for renting a trailer you tow with your car).

If you get your work assignments at a union hall and then go to your place of work, the costs of getting from the union hall to your place of work are nondeductible commuting expenses. Although you need the union to get your work assignments, you are employed where you work, not where the union hall is located.

If you have an office in your home that qualifies as a principal place of business, you can deduct your daily transportation costs between your home and another work location in the same trade or business. (See Pub. 587, Business Use of Your Home, for information on determining if your home office qualifies as a principal place of business.)

The following examples show when you can deduct transportation expenses based on the location of your work and your home.

You regularly work in an office in the city where you live. Your employer sends you to a 1-week training session at a different office in the same city. You travel directly from your home to the training location and return each day. You can deduct the cost of your daily round-trip transportation between your home and the training location.

Your principal place of business is in your home. You can deduct the cost of round-trip transportation between your qualifying home office and your client's or customer's place of business.

You have no regular office, and you don’t have an office in your home. In this case, the location of your first business contact inside the metropolitan area is considered your office. Transportation expenses between your home and this first contact are nondeductible commuting expenses. Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. While you can’t deduct the costs of these trips, you can deduct the costs of going from one client or customer to another.

Car Expenses

If you use your car for business purposes, you may be able to deduct car expenses. You can generally use one of the two following methods to figure your deductible expenses.

Actual car expenses.

The cost of using your car as an employee, whether measured using actual expenses or the standard mileage rate, will no longer be allowed to be claimed as an unreimbursed employee travel expense as a miscellaneous itemized deduction due to the suspension of miscellaneous itemized deductions that are subject to the 2% floor under section 67(a). The suspension applies to tax years beginning after December 2017 and before January 2026. Deductions for expenses that are deductible in determining adjusted gross income are not suspended. For example, Armed Forces reservists, qualified performing artists, and fee-basis state or local government officials are allowed to deduct unreimbursed employee travel expenses as an adjustment to total income on Schedule 1 (Form 1040), line 12.

If you use actual expenses to figure your deduction for a car you lease, there are rules that affect the amount of your lease payments you can deduct. See Leasing a Car , later.

In this publication, “car” includes a van, pickup, or panel truck. For the definition of “car” for depreciation purposes, see Car defined under Actual Car Expenses , later.

Standard Mileage Rate

For 2023, the standard mileage rate for the cost of operating your car for business use is 65.5 cents ($0.655) per mile.

You can generally use the standard mileage rate whether or not you are reimbursed and whether or not any reimbursement is more or less than the amount figured using the standard mileage rate. See chapter 6 for more information on reimbursements .

If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Then, in later years, you can choose to use either the standard mileage rate or actual expenses.

If you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period. For leases that began on or before December 31, 1997, the standard mileage rate must be used for the entire portion of the lease period (including renewals) that is after 1997.

You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. You can’t revoke the choice. However, in later years, you can switch from the standard mileage rate to the actual expenses method. If you change to the actual expenses method in a later year, but before your car is fully depreciated, you have to estimate the remaining useful life of the car and use straight line depreciation for the car’s remaining estimated useful life, subject to depreciation limits (discussed later).

For more information about depreciation included in the standard mileage rate, see Exception under Methods of depreciation , later.

You can’t use the standard mileage rate if you:

Use five or more cars at the same time (such as in fleet operations);

Claimed a depreciation deduction for the car using any method other than straight line for the car’s estimated useful life;

Used the Modified Accelerated Cost Recovery System (MACRS) (as discussed later under Depreciation Deduction );

Claimed a section 179 deduction (discussed later) on the car;

Claimed the special depreciation allowance on the car; or

Claimed actual car expenses after 1997 for a car you leased.

You can elect to use the standard mileage rate if you used a car for hire (such as a taxi) unless the standard mileage rate is otherwise not allowed, as discussed above.

If you own or lease five or more cars that are used for business at the same time, you can’t use the standard mileage rate for the business use of any car. However, you may be able to deduct your actual expenses for operating each of the cars in your business. See Actual Car Expenses , later, for information on how to figure your deduction.

You aren’t using five or more cars for business at the same time if you alternate using (use at different times) the cars for business.

The following examples illustrate the rules for when you can and can’t use the standard mileage rate for five or more cars.

A salesperson owns three cars and two vans that they alternate using for calling on their customers. The salesperson can use the standard mileage rate for the business mileage of the three cars and the two vans because they don’t use them at the same time.

You and your employees use your four pickup trucks in your landscaping business. During the year, you traded in two of your old trucks for two newer ones. You can use the standard mileage rate for the business mileage of all six of the trucks you owned during the year.

You own a repair shop and an insurance business. You and your employees use your two pickup trucks and van for the repair shop. You alternate using your two cars for the insurance business. No one else uses the cars for business purposes. You can use the standard mileage rate for the business use of the pickup trucks, the van, and the cars because you never have more than four vehicles used for business at the same time.

You own a car and four vans that are used in your housecleaning business. Your employees use the vans, and you use the car to travel to various customers. You can’t use the standard mileage rate for the car or the vans. This is because all five vehicles are used in your business at the same time. You must use actual expenses for all vehicles.

If you are an employee, you can’t deduct any interest paid on a car loan. This applies even if you use the car 100% for business as an employee.

However, if you are self-employed and use your car in your business, you can deduct that part of the interest expense that represents your business use of the car. For example, if you use your car 60% for business, you can deduct 60% of the interest on Schedule C (Form 1040). You can’t deduct the part of the interest expense that represents your personal use of the car.

If you itemize your deductions on Schedule A (Form 1040), you can deduct on line 5c state and local personal property taxes on motor vehicles. You can take this deduction even if you use the standard mileage rate or if you don’t use the car for business.

If you are self-employed and use your car in your business, you can deduct the business part of state and local personal property taxes on motor vehicles on Schedule C (Form 1040), or Schedule F (Form 1040). If you itemize your deductions, you can include the remainder of your state and local personal property taxes on the car on Schedule A (Form 1040).

In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. (Parking fees you pay to park your car at your place of work are nondeductible commuting expenses.)

If you sell, trade in, or otherwise dispose of your car, you may have a gain or loss on the transaction or an adjustment to the basis of your new car. See Disposition of a Car , later.

Actual Car Expenses

If you don’t use the standard mileage rate, you may be able to deduct your actual car expenses.

Actual car expenses include:

If you have fully depreciated a car that you still use in your business, you can continue to claim your other actual car expenses. Continue to keep records, as explained later in chapter 5 .

If you use your car for both business and personal purposes, you must divide your expenses between business and personal use. You can divide your expense based on the miles driven for each purpose.

You are a contractor and drive your car 20,000 miles during the year: 12,000 miles for business use and 8,000 miles for personal use. You can claim only 60% (12,000 ÷ 20,000) of the cost of operating your car as a business expense.

If you use a vehicle provided by your employer for business purposes, you can deduct your actual unreimbursed car expenses. You can’t use the standard mileage rate. See Vehicle Provided by Your Employer in chapter 6.

If you are an employee, you can’t deduct any interest paid on a car loan. This interest is treated as personal interest and isn’t deductible. If you are self-employed and use your car in that business, see Interest , earlier, under Standard Mileage Rate.

If you are an employee, you can deduct personal property taxes paid on your car if you itemize deductions. Enter the amount paid on Schedule A (Form 1040), line 5c.

Generally, sales taxes on your car are part of your car's basis and are recovered through depreciation, discussed later.

You can’t deduct fines you pay or collateral you forfeit for traffic violations.

If your car is damaged, destroyed, or stolen, you may be able to deduct part of the loss not covered by insurance. See Pub. 547, Casualties, Disasters, and Thefts, for information on deducting a loss on your car.

Generally, the cost of a car, plus sales tax and improvements, is a capital expense. Because the benefits last longer than 1 year, you generally can’t deduct a capital expense. However, you can recover this cost through the section 179 deduction (the deduction allowed by section 179 of the Internal Revenue Code), special depreciation allowance, and depreciation deductions. Depreciation allows you to recover the cost over more than 1 year by deducting part of it each year. The section 179 deduction , special depreciation allowance , and depreciation deductions are discussed later.

Generally, there are limits on these deductions. Special rules apply if you use your car 50% or less in your work or business.

You can claim a section 179 deduction and use a depreciation method other than straight line only if you don’t use the standard mileage rate to figure your business-related car expenses in the year you first place a car in service.

If, in the year you first place a car in service, you claim either a section 179 deduction or use a depreciation method other than straight line for its estimated useful life, you can’t use the standard mileage rate on that car in any future year.

For depreciation purposes, a car is any four-wheeled vehicle (including a truck or van) made primarily for use on public streets, roads, and highways. Its unloaded gross vehicle weight (for trucks and vans, gross vehicle weight) must not be more than 6,000 pounds. A car includes any part, component, or other item physically attached to it or usually included in the purchase price.

A car doesn’t include:

An ambulance, hearse, or combination ambulance-hearse used directly in a business;

A vehicle used directly in the business of transporting persons or property for pay or hire; or

A truck or van that is a qualified nonpersonal use vehicle.

These are vehicles that by their nature aren’t likely to be used more than a minimal amount for personal purposes. They include trucks and vans that have been specially modified so that they aren’t likely to be used more than a minimal amount for personal purposes, such as by installation of permanent shelving and painting the vehicle to display advertising or the company's name. Delivery trucks with seating only for the driver, or only for the driver plus a folding jump seat, are qualified nonpersonal use vehicles.

See Depreciation Deduction , later, for more information on how to depreciate your vehicle.

Section 179 Deduction

You can elect to recover all or part of the cost of a car that is qualifying section 179 property, up to a limit, by deducting it in the year you place the property in service. This is the section 179 deduction. If you elect the section 179 deduction, you must reduce your depreciable basis in the car by the amount of the section 179 deduction.

You can claim the section 179 deduction only in the year you place the car in service. For this purpose, a car is placed in service when it is ready and available for a specifically assigned use in a trade or business. Even if you aren’t using the property, it is in service when it is ready and available for its specifically assigned use.

A car first used for personal purposes can’t qualify for the deduction in a later year when its use changes to business.

In 2022, you bought a new car and used it for personal purposes. In 2023, you began to use it for business. Changing its use to business use doesn’t qualify the cost of your car for a section 179 deduction in 2023. However, you can claim a depreciation deduction for the business use of the car starting in 2023. See Depreciation Deduction , later.

You must use the property more than 50% for business to claim any section 179 deduction. If you used the property more than 50% for business, multiply the cost of the property by the percentage of business use. The result is the cost of the property that can qualify for the section 179 deduction.

You purchased a new car in April 2023 for $24,500 and used it 60% for business. Based on your business usage, the total cost of your car that qualifies for the section 179 deduction is $14,700 ($24,500 cost × 60% (0.60) business use). But see Limit on total section 179, special depreciation allowance, and depreciation deduction , discussed later.

There are limits on:

The amount of the section 179 deduction;

The section 179 deduction for sport utility and certain other vehicles; and

The total amount of the section 179 deduction, special depreciation allowance, and depreciation deduction (discussed later ) you can claim for a qualified property.

For tax years beginning in 2023, the total amount you can elect to deduct under section 179 can’t be more than $1,160,000.

If the cost of your section 179 property placed in service in tax years beginning in 2023 is over $2,890,000, you must reduce the $1,160,000 dollar limit (but not below zero) by the amount of cost over $2,890,000. If the cost of your section 179 property placed in service during tax years beginning in 2023 is $4,050,000 or more, you can’t take a section 179 deduction.

The total amount you can deduct under section 179 each year after you apply the limits listed above cannot be more than the taxable income from the active conduct of any trade or business during the year.

If you are married and file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service.

If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit. You must allocate the dollar limit (after any reduction) between you.

For more information on the above section 179 deduction limits, see Pub. 946, How To Depreciate Property.

You cannot elect to deduct more than $28,900 of the cost of any heavy sport utility vehicle (SUV) and certain other vehicles placed in service during the tax years beginning in 2023. This rule applies to any four-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways that isn’t subject to any of the passenger automobile limits explained under Depreciation Limits , later, and that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight. However, the $28,900 limit doesn’t apply to any vehicle:

Designed to have a seating capacity of more than nine persons behind the driver's seat;

Equipped with a cargo area of at least 6 feet in interior length that is an open area or is designed for use as an open area but is enclosed by a cap and isn’t readily accessible directly from the passenger compartment; or

That has an integral enclosure, fully enclosing the driver compartment and load carrying device, doesn’t have seating rearward of the driver's seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield.

The first-year limit on the depreciation deduction, special depreciation allowance, and section 179 deduction for vehicles acquired before September 28, 2017, and placed in service during 2023, is $12,200. The first-year limit on depreciation, special depreciation allowance, and section 179 deduction for vehicles acquired after September 27, 2017, and placed in service during 2023 increases to $20,200. If you elect not to claim a special depreciation allowance for a vehicle placed in service in 2023, the amount increases to $12,200. The limit is reduced if your business use of the vehicle is less than 100%. See Depreciation Limits , later, for more information.

In the earlier example under More than 50% business use requirement , you had a car with a cost (for purposes of the section 179 deduction) of $14,700. However, based on your business usage of the car, the total of your section 179 deduction, special depreciation allowance, and depreciation deductions is limited to $12,120 ($20,200 limit x 60% (0.60) business use) because the car was acquired after September 27, 2017, and placed in service during 2023.

For purposes of the section 179 deduction, the cost of the car doesn’t include any amount figured by reference to any other property held by you at any time. For example, if you buy a car as a replacement for a car that was stolen or that was destroyed in a casualty loss, and you use section 1033 to determine the basis in your replacement vehicle, your cost for purposes of the section 179 deduction doesn’t include your adjusted basis in the relinquished car. In that case, your cost includes only the cash you paid.

The amount of the section 179 deduction reduces your basis in your car. If you choose the section 179 deduction, you must subtract the amount of the deduction from the cost of your car. The resulting amount is the basis in your car you use to figure your depreciation deduction.

If you want to take the section 179 deduction, you must make the election in the tax year you place the car in service for business or work.

Employees use Form 2106, Employee Business Expenses, to make the election and report the section 179 deduction. All others use Form 4562, Depreciation and Amortization, to make an election.

File the appropriate form with either of the following.

Your original tax return filed for the year the property was placed in service (whether or not you file it timely).

An amended return filed within the time prescribed by law. An election made on an amended return must specify the item of section 179 property to which the election applies and the part of the cost of each such item to be taken into account. The amended return must also include any resulting adjustments to taxable income.

An election (or any specification made in the election) to take a section 179 deduction for 2023 can only be revoked with the Commissioner's approval.

To be eligible to claim the section 179 deduction, you must use your car more than 50% for business or work in the year you acquired it. If your business use of the car is 50% or less in a later tax year during the recovery period, you have to recapture (include in income) in that later year any excess depreciation. Any section 179 deduction claimed on the car is included in figuring the excess depreciation. For information on this calculation, see Excess depreciation , later in this chapter under Car Used 50% or Less for Business. For more information on recapture of a section 179 deduction, see Pub. 946.

If you dispose of a car on which you had claimed the section 179 deduction, the amount of that deduction is treated as a depreciation deduction for recapture purposes. You treat any gain on the disposition of the property as ordinary income up to the amount of the section 179 deduction and any allowable depreciation (unless you establish the amount actually allowed). For information on the disposition of a car, see Disposition of a Car , later. For more information on recapture of a section 179 deduction, see Pub. 946.

Special Depreciation Allowance

You may be able to claim the special depreciation allowance for your car, truck, or van if it is qualified property and was placed in service in 2023. The allowance for 2023 is an additional depreciation deduction for 100% of the car's depreciable basis (after any section 179 deduction, but before figuring your regular depreciation deduction under MACRS) if the vehicle was acquired after September 27, 2017, and placed in service during 2023. Further, while it applies to a new vehicle, it also applies to a used vehicle only if the vehicle meets the used property requirements. For more information on the used property requirements, see section 168(k)(2)(E)(ii). To qualify for the allowance, more than 50% of the use of the car must be in a qualified business use (as defined under Depreciation Deduction , later).

The first-year limit on the depreciation deduction, special depreciation allowance, and section 179 deduction for vehicles acquired before September 28, 2017, and placed in service during 2023, is $12,200. Your combined section 179 depreciation, special depreciation allowance, and regular MACRS depreciation deduction is limited to the maximum allowable depreciation deduction for vehicles acquired after September 27, 2017, and placed in service during 2023 is $20,200. If you elect not to claim a special depreciation allowance for a vehicle placed in service in 2023, the amount is $12,200. See Depreciation Limits , later in this chapter.

To be qualified property, the car (including the truck or van) must meet all of the following tests.

You acquired the car after September 27, 2017, but only if no written binding contract to acquire the car existed before September 28, 2017.

You acquired the car new or used.

You placed the car in service in your trade or business before January 1, 2027.

You used the car more than 50% in a qualified business use during the tax year.

You can elect not to claim the special depreciation allowance for your car, truck, or van that is qualified property. If you make this election, it applies to all 5-year property placed in service during the year.

To make this election, attach a statement to your timely filed return (including extensions) indicating the class of property (5-year for cars) for which you are making the election and that you are electing not to claim the special depreciation allowance for qualified property in that class of property.

Depreciation Deduction

If you use actual car expenses to figure your deduction for a car you own and use in your business, you can claim a depreciation deduction. This means you can deduct a certain amount each year as a recovery of your cost or other basis in your car.

You generally need to know the following things about the car you intend to depreciate.

Your basis in the car.

The date you place the car in service.

The method of depreciation and recovery period you will use.

Your basis in a car for figuring depreciation is generally its cost. This includes any amount you borrow or pay in cash, other property, or services.

Generally, you figure depreciation on your car, truck, or van using your unadjusted basis (see Unadjusted basis , later). However, in some situations, you will use your adjusted basis (your basis reduced by depreciation allowed or allowable in earlier years). For one of these situations, see Exception under Methods of depreciation , later.

If you change the use of a car from personal to business, your basis for depreciation is the lesser of the fair market value or your adjusted basis in the car on the date of conversion. Additional rules concerning basis are discussed later in this chapter under Unadjusted basis .

You generally place a car in service when it is available for use in your work or business, in an income-producing activity, or in a personal activity. Depreciation begins when the car is placed in service for use in your work or business or for the production of income.

For purposes of figuring depreciation, if you first start using the car only for personal use and later convert it to business use, you place the car in service on the date of conversion.

If you place a car in service and dispose of it in the same tax year, you can’t claim any depreciation deduction for that car.

Generally, you figure depreciation on cars using the Modified Accelerated Cost Recovery (MACRS) discussed later in this chapter.

If you used the standard mileage rate in the first year of business use and change to the actual expenses method in a later year, you can’t depreciate your car under the MACRS rules. You must use straight line depreciation over the estimated remaining useful life of the car. The amount you depreciate can’t be more than the depreciation limit that applies for that year. See Depreciation Limits , later.

To figure depreciation under the straight line method, you must reduce your basis in the car (but not below zero) by a set rate per mile for all miles for which you used the standard mileage rate. The rate per mile varies depending on the year(s) you used the standard mileage rate. For the rate(s) to use, see Depreciation adjustment when you used the standard mileage rate under Disposition of a Car , later.

This reduction of basis is in addition to those basis adjustments described later under Unadjusted basis . You must use your adjusted basis in your car to figure your depreciation deduction. For additional information on the straight line method of depreciation, see Pub. 946.

Generally, you must use your car more than 50% for qualified business use (defined next) during the year to use MACRS. You must meet this more-than-50%-use test each year of the recovery period (6 years under MACRS) for your car.

If your business use is 50% or less, you must use the straight line method to depreciate your car. This is explained later under Car Used 50% or Less for Business .

A qualified business use is any use in your trade or business. It doesn’t include use for the production of income (investment use), or use provided under lease to, or as compensation to, a 5% owner or related person. However, you do combine your business and investment use to figure your depreciation deduction for the tax year.

Don’t treat any use of your car by another person as use in your trade or business unless that use meets one of the following conditions.

It is directly connected with your business.

It is properly reported by you as income to the other person (and, if you have to, you withhold tax on the income).

It results in a payment of fair market rent. This includes any payment to you for the use of your car.

If you used your car more than 50% in qualified business use in the year you placed it in service, but 50% or less in a later year (including the year of disposition), you have to change to the straight line method of depreciation. See Qualified business use 50% or less in a later year under Car Used 50% or Less for Business , later.

If you use your car for more than one purpose during the tax year, you must allocate the use to the various purposes. You do this on the basis of mileage. Figure the percentage of qualified business use by dividing the number of miles you drive your car for business purposes during the year by the total number of miles you drive the car during the year for any purpose.

If you change the use of a car from 100% personal use to business use during the tax year, you may not have mileage records for the time before the change to business use. In this case, you figure the percentage of business use for the year as follows.

Determine the percentage of business use for the period following the change. Do this by dividing business miles by total miles driven during that period.

Multiply the percentage in (1) by a fraction. The numerator (top number) is the number of months the car is used for business, and the denominator (bottom number) is 12.

You use a car only for personal purposes during the first 6 months of the year. During the last 6 months of the year, you drive the car a total of 15,000 miles of which 12,000 miles are for business. This gives you a business use percentage of 80% (12,000 ÷ 15,000) for that period. Your business use for the year is 40% (80% (0.80) × 6 / 12 ).

The amount you can claim for section 179, special depreciation allowance, and depreciation deductions may be limited. The maximum amount you can claim depends on the year in which you placed your car in service. You have to reduce the maximum amount if you did not use the car exclusively for business. See Depreciation Limits , later.

You use your unadjusted basis (often referred to as your basis or your basis for depreciation) to figure your depreciation using the MACRS depreciation chart, explained later under Modified Accelerated Cost Recovery System (MACRS) . Your unadjusted basis for figuring depreciation is your original basis increased or decreased by certain amounts.

To figure your unadjusted basis, begin with your car's original basis, which is generally its cost. Cost includes sales taxes (see Sales taxes , earlier), destination charges, and dealer preparation. Increase your basis by any substantial improvements you make to your car, such as adding air conditioning or a new engine. Decrease your basis by any section 179 deduction, special depreciation allowance, gas guzzler tax, and vehicle credits claimed. See Pub. 551, Basis of Assets, for further details.

If you acquired the car by gift or inheritance, see Pub. 551, Basis of Assets, for information on your basis in the car.

A major improvement to a car is treated as a new item of 5-year recovery property. It is treated as placed in service in the year the improvement is made. It doesn’t matter how old the car is when the improvement is added. Follow the same steps for depreciating the improvement as you would for depreciating the original cost of the car. However, you must treat the improvement and the car as a whole when applying the limits on the depreciation deductions. Your car's depreciation deduction for the year (plus any section 179 deduction, special depreciation allowance, and depreciation on any improvements) can’t be more than the depreciation limit that applies for that year. See Depreciation Limits , later.

If you traded one car (the “old car”) for another car (the “new car”) in 2023, you must treat the transaction as a disposition of the old car and the purchase of the new car. You must treat the old car as disposed of at the time of the trade-in. The depreciable basis of the new car is the adjusted basis of the old car (figured as if 100% of the car’s use had been for business purposes) plus any additional amount you paid for the new car. You then figure your depreciation deduction for the new car beginning with the date you placed it in service. You must also complete Form 2106, Part II, Section D. This method is explained later, beginning at Effect of trade-in on basis .

The discussion that follows applies to trade-ins of cars in 2023, where the election was made to treat the transaction as a disposition of the old car and the purchase of the new car. For information on how to figure depreciation for cars involved in a like-kind exchange (trade-in) in 2023, for which the election wasn’t made, see Pub. 946 and Regulations section 1.168(i)-6(d)(3).

Like‐kind exchanges completed after December 31, 2017, are generally limited to exchanges of real property not held primarily for sale. Regulations section 1.168(i)-6 doesn't reflect this change in law.

If you trade in a car you used only in your business for another car that will be used only in your business, your original basis in the new car is your adjusted basis in the old car, plus any additional amount you pay for the new car.

You trade in a car that has an adjusted basis of $5,000 for a new car. In addition, you pay cash of $20,000 for the new car. Your original basis of the new car is $25,000 (your $5,000 adjusted basis in the old car plus the $20,000 cash paid). Your unadjusted basis is $25,000 unless you claim the section 179 deduction, special depreciation allowance, or have other increases or decreases to your original basis, discussed under Unadjusted basis , earlier.

If you trade in a car you used partly in your business for a new car you will use in your business, you must make a “trade-in” adjustment for the personal use of the old car. This adjustment has the effect of reducing your basis in your old car, but not below zero, for purposes of figuring your depreciation deduction for the new car. (This adjustment isn’t used, however, when you determine the gain or loss on the later disposition of the new car. See Pub. 544, Sales and Other Dispositions of Assets, for information on how to report the disposition of your car.)

To figure the unadjusted basis of your new car for depreciation, first add to your adjusted basis in the old car any additional amount you pay for the new car. Then subtract from that total the excess, if any, of:

The total of the amounts that would have been allowable as depreciation during the tax years before the trade if 100% of the use of the car had been business and investment use, over

The total of the amounts actually allowed as depreciation during those years.

MACRS is the name given to the tax rules for getting back (recovering) through depreciation deductions the cost of property used in a trade or business or to produce income.

The maximum amount you can deduct is limited, depending on the year you placed your car in service. See Depreciation Limits , later.

Under MACRS, cars are classified as 5-year property. You actually depreciate the cost of a car, truck, or van over a period of 6 calendar years. This is because your car is generally treated as placed in service in the middle of the year, and you claim depreciation for one-half of both the first year and the sixth year.

For more information on the qualifications for this shorter recovery period and the percentages to use in figuring the depreciation deduction, see chapter 4 of Pub. 946.

You can use one of the following methods to depreciate your car.

The 200% declining balance method (200% DB) over a 5-year recovery period that switches to the straight line method when that method provides an equal or greater deduction.

The 150% declining balance method (150% DB) over a 5-year recovery period that switches to the straight line method when that method provides an equal or greater deduction.

The straight line method (SL) over a 5-year recovery period.

Before choosing a method, you may wish to consider the following facts.

Using the straight line method provides equal yearly deductions throughout the recovery period.

Using the declining balance methods provides greater deductions during the earlier recovery years with the deductions generally getting smaller each year.

A 2023 MACRS Depreciation Chart and instructions are included in this chapter as Table 4-1 . Using this table will make it easy for you to figure the 2023 depreciation deduction for your car. A similar chart appears in the Instructions for Form 2106.

You must use the Depreciation Tables in Pub. 946 rather than the 2023 MACRS Depreciation Chart in this publication if any one of the following three conditions applies to you.

You file your return on a fiscal year basis.

You file your return for a short tax year (less than 12 months).

During the year, all of the following conditions apply.

You placed some property in service from January through September.

You placed some property in service from October through December.

Your basis in the property you placed in service from October through December (excluding nonresidential real property, residential rental property, and property placed in service and disposed of in the same year) was more than 40% of your total bases in all property you placed in service during the year.

If you use the percentages from the chart, you generally must continue to use them for the entire recovery period of your car. However, you can’t continue to use the chart if your basis in your car is adjusted because of a casualty. In that case, for the year of the adjustment and the remaining recovery period, figure the depreciation without the chart using your adjusted basis in the car at the end of the year of the adjustment and over the remaining recovery period. See Figuring the Deduction Without Using the Tables in chapter 4 of Pub. 946.

If you dispose of the car before the last year of the recovery period, you are generally allowed a half-year of depreciation in the year of disposition. This rule applies unless the mid-quarter convention applies to the vehicle being disposed of. See Depreciation deduction for the year of disposition under Disposition of a Car , later, for information on how to figure the depreciation allowed in the year of disposition.

To figure your depreciation deduction for 2023, find the percentage in the column of Table 4-1 based on the date that you first placed the car in service and the depreciation method that you are using. Multiply the unadjusted basis of your car (defined earlier) by that percentage to determine the amount of your depreciation deduction. If you prefer to figure your depreciation deduction without the help of the chart, see Pub. 946.

You bought a used truck in February 2022 to use exclusively in your landscape business. You paid $9,200 for the truck with no trade-in. You didn’t claim any section 179 deduction, the truck didn’t qualify for the special depreciation allowance, and you chose to use the 200% DB method to get the largest depreciation deduction in the early years.

You used the MACRS Depreciation Chart in 2022 to find your percentage. The unadjusted basis of the truck equals its cost because you used it exclusively for business. You multiplied the unadjusted basis of the truck, $9,200, by the percentage that applied, 20%, to figure your 2022 depreciation deduction of $1,840.

In 2023, you used the truck for personal purposes when you repaired your parent’s cabin. Your records show that the business use of the truck was 90% in 2023. You used Table 4-1 to find your percentage. Reading down the first column for the date placed in service and across to the 200% DB column, you locate your percentage, 32%. You multiply the unadjusted basis of the truck, $8,280 ($9,200 cost × 90% (0.90) business use), by 32% (0.32) to figure your 2023 depreciation deduction of $2,650.

Depreciation Limits

There are limits on the amount you can deduct for depreciation of your car, truck, or van. The section 179 deduction and special depreciation allowance are treated as depreciation for purposes of the limits. The maximum amount you can deduct each year depends on the date you acquired the passenger automobile and the year you place the passenger automobile in service. These limits are shown in the following tables for 2023.

Maximum Depreciation Deduction for Passenger Automobiles (Including Trucks and Vans) Acquired Before September 28, 2017, and Placed in Service During 2018–2023

Maximum depreciation deduction for passenger automobiles (including trucks and vans) acquired after september 27, 2017, and placed in service during 2018 or later.

The maximum amount you can deduct each year depends on the year you place the car in service. These limits are shown in the following tables for prior years.

Maximum Depreciation Deduction for Cars Placed in Service Prior to 2018

For tax years prior to 2018, the maximum depreciation deductions for trucks and vans are generally higher than those for cars. A truck or van is a passenger automobile that is classified by the manufacturer as a truck or van and rated at 6,000 pounds gross vehicle weight or less.

Maximum Depreciation Deduction for Trucks and Vans Placed in Service Prior to 2018

The depreciation limits aren’t reduced if you use a car for less than a full year. This means that you don’t reduce the limit when you either place a car in service or dispose of a car during the year. However, the depreciation limits are reduced if you don’t use the car exclusively for business and investment purposes. See Reduction for personal use next.

The depreciation limits are reduced based on your percentage of personal use. If you use a car less than 100% in your business or work, you must determine the depreciation deduction limit by multiplying the limit amount by the percentage of business and investment use during the tax year.

The section 179 deduction is treated as a depreciation deduction. If you acquired a passenger automobile (including trucks and vans) after September 27, 2017, and placed it in service in 2023, use it only for business, and choose the section 179 deduction, the special depreciation allowance and depreciation deduction for that vehicle for 2023 is limited to $20,200.

On September 4, 2023, you bought and placed in service a used car for $15,000. You used it 80% for your business, and you choose to take a section 179 deduction for the car. The car isn’t qualified property for purposes of the special depreciation allowance.

Before applying the limit, you figure your maximum section 179 deduction to be $12,000. This is the cost of your qualifying property (up to the maximum $1,160,000 amount) multiplied by your business use ($15,000 × 80% (0.80)).

You then figure that your section 179 deduction for 2023 is limited to $9,760 (80% of $12,200). You then figure your unadjusted basis of $2,440 (($15,000 × 80% (0.80)) − $9,760) for determining your depreciation deduction. You have reached your maximum depreciation deduction for 2023. For 2024, you will use your unadjusted basis of $2,440 to figure your depreciation deduction.

If the depreciation deductions for your car are reduced under the passenger automobile limits (discussed earlier), you will have unrecovered basis in your car at the end of the recovery period. If you continue to use your car for business, you can deduct that unrecovered basis (subject to depreciation limits) after the recovery period ends.

This is your cost or other basis in the car reduced by any clean-fuel vehicle deduction (for vehicles placed in service before January 1, 2006), alternative motor vehicle credit, electric vehicle credit, gas guzzler tax, and depreciation (including any special depreciation allowance , discussed earlier, unless you elect not to claim it) and section 179 deductions that would have been allowable if you had used the car 100% for business and investment use.

For 5-year property, your recovery period is 6 calendar years. A part year's depreciation is allowed in the first calendar year, a full year's depreciation is allowed in each of the next 4 calendar years, and a part year's depreciation is allowed in the 6th calendar year.

Under MACRS, your recovery period is the same whether you use declining balance or straight line depreciation. You determine your unrecovered basis in the 7th year after you placed the car in service.

If you continue to use your car for business after the recovery period, you can claim a depreciation deduction in each succeeding tax year until you recover your basis in the car. The maximum amount you can deduct each year is determined by the date you placed the car in service and your business-use percentage. For example, no deduction is allowed for a year you use your car 100% for personal purposes.

In April 2017, you bought and placed in service a car you used exclusively in your business. The car cost $31,500. You didn’t claim a section 179 deduction or the special depreciation allowance for the car. You continued to use the car 100% in your business throughout the recovery period (2017 through 2022). For those years, you used the MACRS Depreciation Chart (200% DB method), the Maximum Depreciation Deduction for Cars Placed in Service Prior to 2018 table and Maximum Depreciation Deduction for Passenger Automobiles (Including Trucks and Vans) Acquired Before September 28, 2017, and Placed in Service During 2018–2023 table, earlier, for the applicable tax year to figure your depreciation deductions during the recovery period. Your depreciation deductions were subject to the depreciation limits, so you will have unrecovered basis at the end of the recovery period as shown in the following table.

At the end of 2022, you had an unrecovered basis in the car of $14,626 ($31,500 – $16,874). If you continued to use the car 100% for business in 2023 and later years, you can claim a depreciation deduction equal to the lesser of $1,875 or your remaining unrecovered basis.

If your business use of the car was less than 100% during any year, your depreciation deduction would be less than the maximum amount allowable for that year. However, in determining your unrecovered basis in the car, you would still reduce your original basis by the maximum amount allowable as if the business use had been 100%. For example, if you had used your car 60% for business instead of 100%, your allowable depreciation deductions would have been $10,124 ($16,874 × 60% (0.60)), but you still would have to reduce your basis by $16,874 to determine your unrecovered basis.

Table 4-1. 2023 MACRS Depreciation Chart (Use To Figure Depreciation for 2023)

Car used 50% or less for business.

If you use your car 50% or less for qualified business use (defined earlier under Depreciation Deduction ) either in the year the car is placed in service or in a later year, special rules apply. The rules that apply in these two situations are explained in the following paragraphs. (For this purpose, “car” was defined earlier under Actual Car Expenses and includes certain trucks and vans.)

If you use your car 50% or less for qualified business use, the following rules apply.

You can’t take the section 179 deduction.

You can’t take the special depreciation allowance.

You must figure depreciation using the straight line method over a 5-year recovery period. You must continue to use the straight line method even if your percentage of business use increases to more than 50% in a later year.

Instead of making the computation yourself, you can use column (c) of Table 4-1 to find the percentage to use.

In May 2023, you bought and placed in service a car for $17,500. You used it 40% for your consulting business. Because you didn’t use the car more than 50% for business, you can’t take any section 179 deduction or special depreciation allowance, and you must use the straight line method over a 5-year recovery period to recover the cost of your car.

You deduct $700 in 2023. This is the lesser of:

$700 (($17,500 cost × 40% (0.40) business use) × 10% (0.10) recovery percentage (from column (c) of Table 4-1 )), or

$4,880 ($12,200 maximum limit × 40% (0.40) business use).

If you use your car more than 50% in qualified business use in the tax year it is placed in service but the business use drops to 50% or less in a later year, you can no longer use an accelerated depreciation method for that car.

For the year the business use drops to 50% or less and all later years in the recovery period, you must use the straight line depreciation method over a 5-year recovery period. In addition, for the year your business use drops to 50% or less, you must recapture (include in your gross income) any excess depreciation (discussed later). You also increase the adjusted basis of your car by the same amount.

In June 2020, you purchased a car for exclusive use in your business. You met the more-than-50%-use test for the first 3 years of the recovery period (2020 through 2022) but failed to meet it in the fourth year (2023). You determine your depreciation for 2023 using 20% (from column (c) of Table 4-1 ). You will also have to determine and include in your gross income any excess depreciation, discussed next.

You must include any excess depreciation in your gross income and add it to your car's adjusted basis for the first tax year in which you don’t use the car more than 50% in qualified business use. Use Form 4797, Sales of Business Property, to figure and report the excess depreciation in your gross income.

Excess depreciation is:

The amount of the depreciation deductions allowable for the car (including any section 179 deduction claimed and any special depreciation allowance claimed) for tax years in which you used the car more than 50% in qualified business use, minus

The amount of the depreciation deductions that would have been allowable for those years if you hadn’t used the car more than 50% in qualified business use for the year you placed it in service. This means the amount of depreciation figured using the straight line method.

In September 2019, you bought a car for $20,500 and placed it in service. You didn’t claim the section 179 deduction or the special depreciation allowance. You used the car exclusively in qualified business use for 2019, 2020, 2021, and 2022. For those years, you used the appropriate MACRS Depreciation Chart to figure depreciation deductions totaling $13,185 ($3,160 for 2019, $5,100 for 2020, $3,050 for 2021, and $1,875 for 2022) under the 200% DB method.

During 2023, you used the car 30% for business and 70% for personal purposes. Since you didn’t meet the more-than-50%-use test, you must switch from the 200% DB depreciation method to the straight line depreciation method for 2023, and include in gross income for 2023 your excess depreciation determined as follows.

In 2023, using Form 4797, you figure and report the $2,110 excess depreciation you must include in your gross income. Your adjusted basis in the car is also increased by $2,110. Your 2023 depreciation is $1,230 ($20,500 (unadjusted basis) × 30% (0.30) (business-use percentage) × 20% (0.20) (from column (c) of Table 4-1 on the line for Jan. 1–Sept. 30, 2019)). However, your depreciation deduction is limited to $563 ($1,875 x 30% (0.30) business use).

Leasing a Car

If you lease a car, truck, or van that you use in your business, you can use the standard mileage rate or actual expenses to figure your deductible expense. This section explains how to figure actual expenses for a leased car, truck, or van.

If you choose to use actual expenses, you can deduct the part of each lease payment that is for the use of the vehicle in your business. You can’t deduct any part of a lease payment that is for personal use of the vehicle, such as commuting.

You must spread any advance payments over the entire lease period. You can’t deduct any payments you make to buy a car, truck, or van even if the payments are called “lease payments.”

If you lease a car, truck, or van for 30 days or more, you may have to reduce your lease payment deduction by an “inclusion amount,” explained next.

Inclusion Amounts

If you lease a car, truck, or van that you use in your business for a lease term of 30 days or more, you may have to include an inclusion amount in your income for each tax year you lease the vehicle. To do this, you don’t add an amount to income. Instead, you reduce your deduction for your lease payment. (This reduction has an effect similar to the limit on the depreciation deduction you would have on the vehicle if you owned it.)

The inclusion amount is a percentage of part of the fair market value of the leased vehicle multiplied by the percentage of business and investment use of the vehicle for the tax year. It is prorated for the number of days of the lease term in the tax year.

The inclusion amount applies to each tax year that you lease the vehicle if the fair market value (defined next) when the lease began was more than the amounts shown in the following tables.

All vehicles are subject to a single inclusion amount threshold for passenger automobiles leased and put into service in 2023. You may have an inclusion amount for a passenger automobile if:

Passenger Automobiles (Including Trucks and Vans)

For years prior to 2018, see the inclusion tables below. You may have an inclusion amount for a passenger automobile if:

Cars (Except for Trucks and Vans)

Trucks and Vans

Fair market value is the price at which the property would change hands between a willing buyer and seller, neither having to buy or sell, and both having reasonable knowledge of all the necessary facts. Sales of similar property around the same date may be helpful in figuring the fair market value of the property.

Figure the fair market value on the first day of the lease term. If the capitalized cost of a car is specified in the lease agreement, use that amount as the fair market value.

Inclusion amounts for tax years 2018–2023 are listed in Appendices A-1 through A-6 for passenger vehicles (including trucks and vans). If the fair market value of the vehicle is $100,000 or less, use the appropriate appendix (depending on the year you first placed the vehicle in service) to determine the inclusion amount. If the fair market value is more than $100,000, see the revenue procedure(s) identified in the footnote of that year’s appendix for the inclusion amount.

For each tax year during which you lease the car for business, determine your inclusion amount by following these three steps.

Locate the appendix that applies to you. To find the inclusion amount, do the following.

Find the line that includes the fair market value of the car on the first day of the lease term.

Go across the line to the column for the tax year in which the car is used under the lease to find the dollar amount. For the last tax year of the lease, use the dollar amount for the preceding year.

Prorate the dollar amount from (1b) for the number of days of the lease term included in the tax year.

Multiply the prorated amount from (2) by the percentage of business and investment use for the tax year. This is your inclusion amount.

On January 17, 2023, you leased a car for 3 years and placed it in service for use in your business. The car had a fair market value of $62,500 on the first day of the lease term. You use the car 75% for business and 25% for personal purposes during each year of the lease. Assuming you continue to use the car 75% for business, you use Appendix A-6 to arrive at the following inclusion amounts for each year of the lease. For the last tax year of the lease, 2026, you use the amount for the preceding year.

2024 is a leap year and includes an extra calendar day, February 29, 2024.

For each year of the lease that you deduct lease payments, you must reduce your deduction by the inclusion amount figured for that year.

If you lease a car for business use and, in a later year, change it to personal use, follow the rules explained earlier under Figuring the inclusion amount . For the tax year in which you stop using the car for business, use the dollar amount for the previous tax year. Prorate the dollar amount for the number of days in the lease term that fall within the tax year.

On August 16, 2022, you leased a car with a fair market value of $64,500 for 3 years. You used the car exclusively in your data processing business. On November 6, 2023, you closed your business and went to work for a company where you aren’t required to use a car for business. Using Appendix A-5 , you figured your inclusion amount for 2022 and 2023 as shown in the following table and reduced your deductions for lease payments by those amounts.

If you lease a car for personal use and, in a later year, change it to business use, you must determine the car's fair market value on the date of conversion. Then figure the inclusion amount using the rules explained earlier under Figuring the inclusion amount . Use the fair market value on the date of conversion.

In March 2021, you leased a truck for 4 years for personal use. On June 1, 2023, you started working as a self-employed advertising consultant and started using the leased truck for business purposes. Your records show that your business use for June 1 through December 31 was 60%. To figure your inclusion amount for 2023, you obtained an appraisal from an independent car leasing company that showed the fair market value of your 2021 truck on June 1, 2023, was $62,650. Using Appendix A-6 , you figured your inclusion amount for 2023 as shown in the following table.

For information on reporting inclusion amounts, employees should see Car rentals under Completing Forms 2106 in chapter 6. Sole proprietors should see the Instructions for Schedule C (Form 1040), and farmers should see the Instructions for Schedule F (Form 1040).

Disposition of a Car

If you dispose of your car, you may have a taxable gain or a deductible loss. The portion of any gain that is due to depreciation (including any section 179 deduction, clean-fuel vehicle deduction (for vehicles placed in service before January 1, 2006), and special depreciation allowance) that you claimed on the car will be treated as ordinary income. However, you may not have to recognize a gain or loss if you dispose of the car because of a casualty or theft.

This section gives some general information about dispositions of cars. For information on how to report the disposition of your car, see Pub. 544.

Like‐kind exchanges completed after December 31, 2017, are generally limited to exchanges of real property not held primarily for sale.

For a casualty or theft, a gain results when you receive insurance or other reimbursement that is more than your adjusted basis in your car. If you then spend all of the proceeds to acquire replacement property (a new car or repairs to the old car) within a specified period of time, you don’t recognize any gain. Your basis in the replacement property is its cost minus any gain that isn’t recognized. See Pub. 547 for more information.

When you trade in an old car for a new one, the transaction is considered a like-kind exchange. Generally, no gain or loss is recognized. (For exceptions, see chapter 1 of Pub. 544.) In a trade-in situation, your basis in the new property is generally your adjusted basis in the old property plus any additional amount you pay. (See Unadjusted basis , earlier.)

If you used the standard mileage rate for the business use of your car, depreciation was included in that rate. The rate of depreciation that was allowed in the standard mileage rate is shown in the Rate of Depreciation Allowed in Standard Mileage Rate table, later. You must reduce your basis in your car (but not below zero) by the amount of this depreciation.

If your basis is reduced to zero (but not below zero) through the use of the standard mileage rate, and you continue to use your car for business, no adjustment (reduction) to the standard mileage rate is necessary. Use the full standard mileage rate (65.5 cents ($0.655) per mile from January 1–December 31 for 2023) for business miles driven.

Rate of Depreciation Allowed in Standard Mileage Rate

In 2018, you bought and placed in service a car for exclusive use in your business. The car cost $25,500. From 2018 through 2023, you used the standard mileage rate to figure your car expense deduction. You drove your car 14,100 miles in 2018, 16,300 miles in 2019, 15,600 miles in 2020, 16,700 miles in 2021, 15,100 miles in 2022, and 14,900 miles in 2023. The depreciation portion of your car expense deduction is figured as follows.

If you deduct actual car expenses and you dispose of your car before the end of the recovery period (years 2 through 5), you are allowed a reduced depreciation deduction in the year of disposition.

Use the depreciation tables in Pub. 946 to figure the reduced depreciation deduction for a car disposed of in 2023.

The depreciation amounts computed using the depreciation tables in Pub. 946 for years 2 through 5 that you own your car are for a full year’s depreciation. Years 1 and 6 apply the half-year or mid-quarter convention to the computation for you. If you dispose of the vehicle in years 2 through 5 and the half-year convention applies, then the full year’s depreciation amount must be divided by 2. If the mid-quarter convention applies, multiply the full year’s depreciation by the percentage from the following table for the quarter that you disposed of the car.

If the car is subject to the Depreciation Limits , discussed earlier, reduce (but do not increase) the computed depreciation to this amount. See Sale or Other Disposition Before the Recovery Period Ends in chapter 4 of Pub. 946 for more information.

5. Recordkeeping

If you deduct travel, gift, or transportation expenses, you must be able to prove (substantiate) certain elements of expense. This chapter discusses the records you need to keep to prove these expenses.

How To Prove Expenses

Table 5-1 is a summary of records you need to prove each expense discussed in this publication. You must be able to prove the elements listed across the top portion of the chart. You prove them by having the information and receipts (where needed) for the expenses listed in the first column.

You should keep adequate records to prove your expenses or have sufficient evidence that will support your own statement. You must generally prepare a written record for it to be considered adequate. This is because written evidence is more reliable than oral evidence alone. However, if you prepare a record on a computer, it is considered an adequate record.

What Are Adequate Records?

You should keep the proof you need in an account book, diary, log, statement of expense, trip sheets, or similar record. You should also keep documentary evidence that, together with your record, will support each element of an expense.

You must generally have documentary evidence such as receipts, canceled checks, or bills, to support your expenses.

Documentary evidence isn’t needed if any of the following conditions apply.

You have meals or lodging expenses while traveling away from home for which you account to your employer under an accountable plan, and you use a per diem allowance method that includes meals and/or lodging. ( Accountable plans and per diem allowances are discussed in chapter 6.)

Your expense, other than lodging, is less than $75.

You have a transportation expense for which a receipt isn’t readily available.

Documentary evidence will ordinarily be considered adequate if it shows the amount, date, place, and essential character of the expense.

For example, a hotel receipt is enough to support expenses for business travel if it has all of the following information.

The name and location of the hotel.

The dates you stayed there.

Separate amounts for charges such as lodging, meals, and telephone calls.

A restaurant receipt is enough to prove an expense for a business meal if it has all of the following information.

The name and location of the restaurant.

The number of people served.

The date and amount of the expense.

A canceled check, together with a bill from the payee, ordinarily establishes the cost. However, a canceled check by itself doesn’t prove a business expense without other evidence to show that it was for a business purpose.

You don‘t have to record information in your account book or other record that duplicates information shown on a receipt as long as your records and receipts complement each other in an orderly manner.

You don’t have to record amounts your employer pays directly for any ticket or other travel item. However, if you charge these items to your employer, through a credit card or otherwise, you must keep a record of the amounts you spend.

You should record the elements of an expense or of a business use at or near the time of the expense or use and support it with sufficient documentary evidence. A timely kept record has more value than a statement prepared later when there is generally a lack of accurate recall.

You don’t need to write down the elements of every expense on the day of the expense. If you maintain a log on a weekly basis that accounts for use during the week, the log is considered a timely kept record.

If you give your employer, client, or customer an expense account statement, it can also be considered a timely kept record. This is true if you copy it from your account book, diary, log, statement of expense, trip sheets, or similar record.

You must generally provide a written statement of the business purpose of an expense. However, the degree of proof varies according to the circumstances in each case. If the business purpose of an expense is clear from the surrounding circumstances, then you don’t need to give a written explanation.

If you are a sales representative who calls on customers on an established sales route, you don’t have to give a written explanation of the business purpose for traveling that route. You can satisfy the requirements by recording the length of the delivery route once, the date of each trip at or near the time of the trips, and the total miles you drove the car during the tax year. You could also establish the date of each trip with a receipt, record of delivery, or other documentary evidence.

You don’t need to put confidential information relating to an element of a deductible expense (such as the place, business purpose, or business relationship) in your account book, diary, or other record. However, you do have to record the information elsewhere at or near the time of the expense and have it available to fully prove that element of the expense.

What if I Have Incomplete Records?

If you don’t have complete records to prove an element of an expense, then you must prove the element with:

Your own written or oral statement containing specific information about the element, and

Other supporting evidence that is sufficient to establish the element.

If the element is the description of a gift, or the cost, time, place, or date of an expense, the supporting evidence must be either direct evidence or documentary evidence. Direct evidence can be written statements or the oral testimony of your guests or other witnesses setting forth detailed information about the element. Documentary evidence can be receipts, paid bills, or similar evidence.

If the element is either the business relationship of your guests or the business purpose of the amount spent, the supporting evidence can be circumstantial rather than direct. For example, the nature of your work, such as making deliveries, provides circumstantial evidence of the use of your car for business purposes. Invoices of deliveries establish when you used the car for business.

Table 5-1. How To Prove Certain Business Expenses

You can keep an adequate record for parts of a tax year and use that record to prove the amount of business or investment use for the entire year. You must demonstrate by other evidence that the periods for which an adequate record is kept are representative of the use throughout the tax year.

You use your car to visit the offices of clients, meet with suppliers and other subcontractors, and pick up and deliver items to clients. There is no other business use of the car, but you and your family use the car for personal purposes. You keep adequate records during the first week of each month that show that 75% of the use of the car is for business. Invoices and bills show that your business use continues at the same rate during the later weeks of each month. Your weekly records are representative of the use of the car each month and are sufficient evidence to support the percentage of business use for the year.

You can satisfy the substantiation requirements with other evidence if, because of the nature of the situation in which an expense is made, you can’t get a receipt. This applies if all the following are true.

You were unable to obtain evidence for an element of the expense or use that completely satisfies the requirements explained earlier under What Are Adequate Records .

You are unable to obtain evidence for an element that completely satisfies the two rules listed earlier under What if I Have Incomplete Records .

You have presented other evidence for the element that is the best proof possible under the circumstances.

If you can’t produce a receipt because of reasons beyond your control, you can prove a deduction by reconstructing your records or expenses. Reasons beyond your control include fire, flood, and other casualties.

Separating and Combining Expenses

This section explains when expenses must be kept separate and when expenses can be combined.

Each separate payment is generally considered a separate expense. For example, if you entertain a customer or client at dinner and then go to the theater, the dinner expense and the cost of the theater tickets are two separate expenses. You must record them separately in your records.

You can make one daily entry in your record for reasonable categories of expenses. Examples are taxi fares, telephone calls, or other incidental travel costs. Nonentertainment meals should be in a separate category. You can include tips for meal-related services with the costs of the meals.

Expenses of a similar nature occurring during the course of a single event are considered a single expense.

You can account for several uses of your car that can be considered part of a single use, such as a round trip or uninterrupted business use, with a single record. Minimal personal use, such as a stop for lunch on the way between two business stops, isn’t an interruption of business use.

You make deliveries at several different locations on a route that begins and ends at your employer's business premises and that includes a stop at the business premises between two deliveries. You can account for these using a single record of miles driven.

You don’t always have to record the name of each recipient of a gift. A general listing will be enough if it is evident that you aren’t trying to avoid the $25 annual limit on the amount you can deduct for gifts to any one person. For example, if you buy a large number of tickets to local high school basketball games and give one or two tickets to each of many customers, it is usually enough to record a general description of the recipients.

If you can prove the total cost of travel or entertainment but you can’t prove how much it costs for each person who participated in the event, you may have to allocate the total cost among you and your guests on a pro rata basis. To do so, you must establish the number of persons who participated in the event.

If your return is examined, you may have to provide additional information to the IRS. This information could be needed to clarify or to establish the accuracy or reliability of information contained in your records, statements, testimony, or documentary evidence before a deduction is allowed.

How Long To Keep Records and Receipts

You must keep records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Generally, this means you must keep records that support your deduction (or an item of income) for 3 years from the date you file the income tax return on which the deduction is claimed. A return filed early is considered filed on the due date. For a more complete explanation of how long to keep records, see Pub. 583, Starting a Business and Keeping Records.

You must keep records of the business use of your car for each year of the recovery period. See More-than-50%-use test in chapter 4 under Depreciation Deduction.

Employees who give their records and documentation to their employers and are reimbursed for their expenses generally don’t have to keep copies of this information. However, you may have to prove your expenses if any of the following conditions apply.

You claim deductions for expenses that are more than reimbursements.

Your expenses are reimbursed under a nonaccountable plan.

Your employer doesn’t use adequate accounting procedures to verify expense accounts.

You are related to your employer as defined under Per Diem and Car Allowances in chapter 6.

Table 5-2 and Table 5-3 are examples of worksheets that can be used for tracking business expenses.

Table 5-2. Daily Business Mileage and Expense Log

Table 5-3. Weekly Traveling Expense Record

6. How To Report

This chapter explains where and how to report the expenses discussed in this publication. It discusses reimbursements and how to treat them under accountable and nonaccountable plans. It also explains rules for independent contractors and clients, fee-basis officials, certain performing artists, Armed Forces reservists, and certain disabled employees. The chapter ends with illustrations of how to report travel, gift, and car expenses on Forms 2106.

Where To Report

This section provides general information on where to report the expenses discussed in this publication.

You must report your income and expenses on Schedule C (Form 1040) if you are a sole proprietor, or on Schedule F (Form 1040) if you are a farmer. You don’t use Form 2106.

If you claim car or truck expenses, you must provide certain information on the use of your vehicle. You provide this information on Schedule C (Form 1040) or Form 4562.

If you file Schedule C (Form 1040):

Report your travel expenses, except meals, on line 24a;

Report your deductible non-entertainment-related meals (actual cost or standard meal allowance) on line 24b;

Report your gift expenses and transportation expenses, other than car expenses, on line 27a; and

Report your car expenses on line 9. Complete Part IV of the form unless you have to file Form 4562 for depreciation or amortization.

If you file Schedule F (Form 1040), do the following.

Report your car expenses on line 10. Attach Form 4562 and provide information on the use of your car in Part V of Form 4562.

Report all other business expenses discussed in this publication on line 32. You can only include 50% of your non-entertainment-related meals on that line.

If you are both self-employed and an employee, you must keep separate records for each business activity. Report your business expenses for self-employment on Schedule C (Form 1040), or Schedule F (Form 1040), as discussed earlier. Report your business expenses for your work as an employee on Form 2106, as discussed next.

If you are an employee, you must generally complete Form 2106 to deduct your travel and transportation expenses.

You are an employee deducting expenses attributable to your job.

You weren’t reimbursed by your employer for your expenses (amounts included in box 1 of your Form W-2 aren’t considered reimbursements).

If you claim car expenses, you use the standard mileage rate.

For more information on how to report your expenses on Form 2106, see Completing Form 2106 , later.

If you didn’t receive any reimbursements (or the reimbursements were all included in box 1 of your Form W-2), the only business expense you are claiming is for gifts, and the special rules discussed later don’t apply to you, don’t complete Form 2106.

If you received a Form W-2 and the “Statutory employee” box in box 13 was checked, report your income and expenses related to that income on Schedule C (Form 1040). Don’t complete Form 2106.

Statutory employees include full-time life insurance salespersons, certain agent or commission drivers, traveling salespersons, and certain homeworkers.

If your employer reimburses you for nondeductible personal expenses, such as for vacation trips, your employer must report the reimbursement as wage income in box 1 of your Form W-2. You can’t deduct personal expenses.

If you have travel or transportation expenses related to income-producing property, report your deductible expenses on the form appropriate for that activity.

For example, if you have rental real estate income and expenses, report your expenses on Schedule E (Form 1040), Supplemental Income and Loss. See Pub. 527, Residential Rental Property, for more information on the rental of real estate.

Vehicle Provided by Your Employer

If your employer provides you with a car, you may be able to deduct the actual expenses of operating that car for business purposes. The amount you can deduct depends on the amount that your employer included in your income and the business and personal miles you drove during the year. You can’t use the standard mileage rate.

Your employer can figure and report either the actual value of your personal use of the car or the value of the car as if you used it only for personal purposes (100% income inclusion). Your employer must separately state the amount if 100% of the annual lease value was included in your income. If you are unsure of the amount included on your Form W-2, ask your employer.

You may be able to deduct the value of the business use of an employer-provided car if your employer reported 100% of the value of the car in your income. On your 2023 Form W-2, the amount of the value will be included in box 1, Wages, tips, other compensation; and box 14, Other.

To claim your expenses, complete Form 2106, Part II, Sections A and C. Enter your actual expenses on line 23 of Section C and include the entire value of the employer-provided car on line 25. Complete the rest of the form.

If less than the full annual lease value of the car was included on your Form W-2, this means that your Form W-2 only includes the value of your personal use of the car. Don’t enter this value on your Form 2106 because it isn’t deductible.

If you paid any actual costs (that your employer didn’t provide or reimburse you for) to operate the car, you can deduct the business portion of those costs. Examples of costs that you may have are gas, oil, and repairs. Complete Form 2106, Part II, Sections A and C. Enter your actual costs on line 23 of Section C and leave line 25 blank. Complete the rest of the form.

Reimbursements

This section explains what to do when you receive an advance or are reimbursed for any of the employee business expenses discussed in this publication.

If you received an advance, allowance, or reimbursement for your expenses, how you report this amount and your expenses depends on whether your employer reimbursed you under an accountable plan or a nonaccountable plan.

This section explains the two types of plans, how per diem and car allowances simplify proving the amount of your expenses, and the tax treatment of your reimbursements and expenses. It also covers rules for independent contractors.

You aren’t reimbursed or given an allowance for your expenses if you are paid a salary or commission with the understanding that you will pay your own expenses. In this situation, you have no reimbursement or allowance arrangement, and you don’t have to read this section on reimbursements. Instead, see Completing Form 2106 , later, for information on completing your tax return.

A reimbursement or other expense allowance arrangement is a system or plan that an employer uses to pay, substantiate, and recover the expenses, advances, reimbursements, and amounts charged to the employer for employee business expenses. Arrangements include per diem and car allowances.

A per diem allowance is a fixed amount of daily reimbursement your employer gives you for your lodging and M&IE when you are away from home on business. (The term “incidental expenses” is defined in chapter 1 under Standard Meal Allowance. ) A car allowance is an amount your employer gives you for the business use of your car.

Your employer should tell you what method of reimbursement is used and what records you must provide.

If you are an employer and you reimburse employee business expenses, how you treat this reimbursement on your employee's Form W-2 depends in part on whether you have an accountable plan. Reimbursements treated as paid under an accountable plan, as explained next, aren’t reported as pay. Reimbursements treated as paid under nonaccountable plans , as explained later, are reported as pay. See Pub. 15 (Circular E), Employer's Tax Guide, for information on employee pay.

Accountable Plans

To be an accountable plan, your employer's reimbursement or allowance arrangement must include all of the following rules.

Your expenses must have a business connection—that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer.

You must adequately account to your employer for these expenses within a reasonable period of time.

You must return any excess reimbursement or allowance within a reasonable period of time.

Adequate accounting and returning excess reimbursements are discussed later.

An excess reimbursement or allowance is any amount you are paid that is more than the business-related expenses that you adequately accounted for to your employer.

The definition of reasonable period of time depends on the facts and circumstances of your situation. However, regardless of the facts and circumstances of your situation, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time.

You receive an advance within 30 days of the time you have an expense.

You adequately account for your expenses within 60 days after they were paid or incurred.

You return any excess reimbursement within 120 days after the expense was paid or incurred.

You are given a periodic statement (at least quarterly) that asks you to either return or adequately account for outstanding advances and you comply within 120 days of the statement.

If you meet the three rules for accountable plans, your employer shouldn’t include any reimbursements in your income in box 1 of your Form W-2. If your expenses equal your reimbursements, you don’t complete Form 2106. You have no deduction since your expenses and reimbursements are equal.

Even though you are reimbursed under an accountable plan, some of your expenses may not meet all three rules. All reimbursements that fail to meet all three rules for accountable plans are generally treated as having been reimbursed under a nonaccountable plan (discussed later).

If you are reimbursed under an accountable plan, but you fail to return, within a reasonable time, any amounts in excess of the substantiated amounts, the amounts paid in excess of the substantiated expenses are treated as paid under a nonaccountable plan. See Reasonable period of time , earlier, and Returning Excess Reimbursements , later.

You may be reimbursed under your employer's accountable plan for expenses related to that employer's business, some of which would be allowable as employee business expense deductions and some of which would not. The reimbursements you receive for the nondeductible expenses don’t meet rule (1) for accountable plans, and they are treated as paid under a nonaccountable plan.

Your employer's plan reimburses you for travel expenses while away from home on business and also for meals when you work late at the office, even though you aren’t away from home. The part of the arrangement that reimburses you for the nondeductible meals when you work late at the office is treated as paid under a nonaccountable plan.

One of the rules for an accountable plan is that you must adequately account to your employer for your expenses. You adequately account by giving your employer a statement of expense, an account book, a diary, or a similar record in which you entered each expense at or near the time you had it, along with documentary evidence (such as receipts) of your travel, mileage, and other employee business expenses. (See Table 5-1 in chapter 5 for details you need to enter in your record and documents you need to prove certain expenses.) A per diem or car allowance satisfies the adequate accounting requirement under certain conditions. See Per Diem and Car Allowances , later.

You must account for all amounts you received from your employer during the year as advances, reimbursements, or allowances. This includes amounts you charged to your employer by credit card or other method. You must give your employer the same type of records and supporting information that you would have to give to the IRS if the IRS questioned a deduction on your return. You must pay back the amount of any reimbursement or other expense allowance for which you don’t adequately account or that is more than the amount for which you accounted.

Per Diem and Car Allowances

If your employer reimburses you for your expenses using a per diem or a car allowance, you can generally use the allowance as proof for the amount of your expenses. A per diem or car allowance satisfies the adequate accounting requirements for the amount of your expenses only if all the following conditions apply.

Your employer reasonably limits payments of your expenses to those that are ordinary and necessary in the conduct of the trade or business.

The allowance is similar in form to and not more than the federal rate (defined later).

You prove the time (dates), place, and business purpose of your expenses to your employer (as explained in Table 5-1 ) within a reasonable period of time.

You aren’t related to your employer (as defined next). If you are related to your employer, you must be able to prove your expenses to the IRS even if you have already adequately accounted to your employer and returned any excess reimbursement.

You are related to your employer if:

Your employer is your brother or sister, half brother or half sister, spouse, ancestor, or lineal descendant;

Your employer is a corporation in which you own, directly or indirectly, more than 10% in value of the outstanding stock; or

Certain relationships (such as grantor, fiduciary, or beneficiary) exist between you, a trust, and your employer.

The federal rate can be figured using any one of the following methods.

For per diem amounts:

The regular federal per diem rate.

The high-low rate.

For car expenses:

A fixed and variable rate (FAVR).

The regular federal per diem rate is the highest amount that the federal government will pay to its employees for lodging and M&IE (or M&IE only) while they are traveling away from home in a particular area. The rates are different for different localities. Your employer should have these rates available. You can also find federal per diem rates at GSA.gov/travel/plan-book/per-diem-rates .

The standard meal allowance is the federal M&IE rate. For travel in 2023, the rate for most small localities in the United States is $59 per day. Most major cities and many other localities qualify for higher rates. You can find this information at GSA.gov/travel/plan-book/per-diem-rates .

You receive an allowance only for M&IE when your employer does one of the following.

Provides you with lodging (furnishes it in kind).

Reimburses you, based on your receipts, for the actual cost of your lodging.

Pays the hotel, motel, etc., directly for your lodging.

Doesn’t have a reasonable belief that you had (or will have) lodging expenses, such as when you stay with friends or relatives or sleep in the cab of your truck.

Figures the allowance on a basis similar to that used in figuring your compensation, such as number of hours worked or miles traveled.

This is a simplified method of figuring the federal per diem rate for travel within the continental United States. It eliminates the need to keep a current list of the per diem rates for each city.

Under the high-low method, the per diem amount for travel during January through September of 2023 is $297 (which includes $74 for M&IE) for certain high-cost locations. All other areas have a per diem amount of $204 (which includes $64 for M&IE). For more information, see Notice 2022-44, which can be found at IRS.gov/irb/2022-41_IRB#NOT-2022-44 .

Effective October 1, 2023, the per diem rate for certain high-cost locations increased to $309 (which includes $74 for M&IE). The rate for all other locations increased to $214 (which includes $64 for M&IE). For more information, see Notice 2023-68, which can be found at IRS.gov/irb/2023-41_IRB#NOT-2023-68 , and Revenue Procedure 2019-48 at IRS.gov/irb/2019-51_IRB#REV-PROC-2019-48 .

The standard meal allowance is for a full 24-hour day of travel. If you travel for part of a day, such as on the days you depart and return, you must prorate the full-day M&IE rate. This rule also applies if your employer uses the regular federal per diem rate or the high-low rate.

You can use either of the following methods to figure the federal M&IE for that day.

For the day you depart, add 3 / 4 of the standard meal allowance amount for that day.

For the day you return, add 3 / 4 of the standard meal allowance amount for the preceding day.

Method 2: Prorate the standard meal allowance using any method you consistently apply in accordance with reasonable business practice. For example, an employer can treat 2 full days of per diem (that includes M&IE) paid for travel away from home from 9 a.m. of one day to 5 p.m. of the next day as being no more than the federal rate. This is true even though a federal employee would be limited to a reimbursement of M&IE for only 1½ days of the federal M&IE rate.

This is a set rate per mile that you can use to figure your deductible car expenses. For 2023, the standard mileage rate for the cost of operating your car for business use is 65.5 cents ($0.655) per mile.

This is an allowance your employer may use to reimburse your car expenses. Under this method, your employer pays an allowance that includes a combination of payments covering fixed and variable costs, such as a cents-per-mile rate to cover your variable operating costs (such as gas, oil, etc.) plus a flat amount to cover your fixed costs (such as depreciation (or lease payments), insurance, etc.). If your employer chooses to use this method, your employer will request the necessary records from you.

If your reimbursement is in the form of an allowance received under an accountable plan, the following facts affect your reporting.

Whether the allowance or your actual expenses were more than the federal rate.

If your allowance is less than or equal to the federal rate, the allowance won’t be included in box 1 of your Form W-2. You don’t need to report the related expenses or the allowance on your return if your expenses are equal to or less than the allowance.

However, if your actual expenses are more than your allowance, you can complete Form 2106. If you are using actual expenses, you must be able to prove to the IRS the total amount of your expenses and reimbursements for the entire year. If you are using the standard meal allowance or the standard mileage rate, you don’t have to prove that amount.

In April, a member of a reserve component of the Armed Forces takes a 2-day business trip to Denver. The federal rate for Denver is $278 ($199 lodging + $79 M&IE) per day. As required by their employer's accountable plan, they account for the time (dates), place, and business purpose of the trip. Their employer reimburses them $278 a day ($556 total) for living expenses. Their living expenses in Denver aren’t more than $278 a day.

Their employer doesn’t include any of the reimbursement on their Form W-2 and they don’t deduct the expenses on their return.

In June, a fee-basis local government official takes a 2-day business trip to Boston. Their employer uses the high-low method to reimburse employees. Because Boston is a high-cost area, they are given an advance of $297 (which includes $74 for M&IE) a day ($594 total) for their lodging and M&IE. Their actual expenses totaled $700.

Since their $700 of expenses are more than their $594 advance, they include the excess expenses when they itemize their deductions. They complete Form 2106 (showing all of their expenses and reimbursements). They must also allocate their reimbursement between their meals and other expenses as discussed later under Completing Form 2106 .

A fee-basis state government official drives 10,000 miles during 2023 for business. Under their employer's accountable plan, they account for the time (dates), place, and business purpose of each trip. Their employer pays them a mileage allowance of 40 cents ($0.40) a mile.

Because their $6,550 expense figured under the standard mileage rate (10,000 miles x 65.5 cents ($0.655) per mile) is more than their $4,000 reimbursement (10,000 miles × 40 cents ($0.40)), they itemize their deductions to claim the excess expense. They complete Form 2106 (showing all their expenses and reimbursements) and enter $2,550 ($6,550 − $4,000) as an itemized deduction.

If your allowance is more than the federal rate, your employer must include the allowance amount up to the federal rate under code L in box 12 of your Form W-2. This amount isn’t taxable. However, the excess allowance will be included in box 1 of your Form W-2. You must report this part of your allowance as if it were wage income.

If your actual expenses are less than or equal to the federal rate, you don’t complete Form 2106 or claim any of your expenses on your return.

However, if your actual expenses are more than the federal rate, you can complete Form 2106 and deduct those excess expenses. You must report on Form 2106 your reimbursements up to the federal rate (as shown under code L in box 12 of your Form W-2) and all your expenses. You should be able to prove these amounts to the IRS.

Sasha, a performing artist, lives and works in Austin. In July, the employer sent Sasha to Albuquerque for 4 days on business. The employer paid the hotel directly for Sasha’s lodging and reimbursed $80 a day ($320 total) for M&IE. Sasha’s actual meal expenses weren’t more than the federal rate for Albuquerque, which is $69 per day.

The employer included the $44 that was more than the federal rate (($80 − $69) × 4) in box 1 of Sasha’s Form W-2. The employer shows $276 ($69 a day × 4) under code L in box 12 of Form W-2. This amount isn’t included in income. Sasha doesn’t have to complete Form 2106; however, Sasha must include the $44 in gross income as wages (by reporting the total amount shown in box 1 of their Form W-2).

Another performing artist, Ari, also lives in Austin and works for the same employer as in Example 1 . In May, the employer sent Ari to San Diego for 4 days and paid the hotel directly for the hotel bill. The employer reimbursed Ari $75 a day for M&IE. The federal rate for San Diego is $74 a day.

Ari can prove that actual non-entertainment-related meal expenses totaled $380. The employer's accountable plan won’t pay more than $75 a day for travel to San Diego, so Ari doesn’t give the employer the records that prove that the amount actually spent was $380. However, Ari does account for the time (dates), place, and business purpose of the trip. This is Ari’s only business trip this year.

Ari was reimbursed $300 ($75 × 4 days), which is $4 more than the federal rate of $296 ($74 × 4 days). The employer includes the $4 as income on the employee’s Form W-2 in box 1. The employer also enters $296 under code L in box 12 of the employee’s Form W-2.

Ari completes Form 2106 to figure deductible expenses and enters the total of actual expenses for the year ($380) on Form 2106. Ari also enters the reimbursements that weren’t included in income ($296). Ari’s total deductible meals and beverages expense, before the 50% limit, is $96. Ari will include $48 as an itemized deduction.

Palmer, a fee-basis state government official, drives 10,000 miles during 2023 for business. Under the employer's accountable plan, Palmer gets reimbursed 70 cents ($0.70) a mile, which is more than the standard mileage rate. The total reimbursement is $7,000.

The employer must include the reimbursement amount up to the standard mileage rate, $6,550 (10,000 miles x 65.5 cents ($0.655) per mile), under code L in box 12 of the employee’s Form W-2. That amount isn’t taxable. The employer must also include $450 ($7,000 − $6,550) in box 1 of the employee's Form W-2. This is the reimbursement that is more than the standard mileage rate.

If the expenses are equal to or less than the standard mileage rate, Palmer wouldn’t complete Form 2106. If the expenses are more than the standard mileage rate, Palmer would complete Form 2106 and report total expenses and reimbursement (shown under code L in box 12 of their Form W-2). Palmer would then claim the excess expenses as an itemized deduction.

Returning Excess Reimbursements

Under an accountable plan, you are required to return any excess reimbursement or other expense allowances for your business expenses to the person paying the reimbursement or allowance. Excess reimbursement means any amount for which you didn’t adequately account within a reasonable period of time. For example, if you received a travel advance and you didn’t spend all the money on business-related expenses or you don’t have proof of all your expenses, you have an excess reimbursement.

Adequate accounting and reasonable period of time were discussed earlier in this chapter.

You receive a travel advance if your employer provides you with an expense allowance before you actually have the expense, and the allowance is reasonably expected to be no more than your expense. Under an accountable plan, you are required to adequately account to your employer for this advance and to return any excess within a reasonable period of time.

If you don’t adequately account for or don't return any excess advance within a reasonable period of time, the amount you don’t account for or return will be treated as having been paid under a nonaccountable plan (discussed later).

If you don’t prove that you actually traveled on each day for which you received a per diem or car allowance (proving the elements described in Table 5-1 ), you must return this unproven amount of the travel advance within a reasonable period of time. If you don’t do this, the unproven amount will be considered paid under a nonaccountable plan (discussed later).

If your employer's accountable plan pays you an allowance that is higher than the federal rate, you don’t have to return the difference between the two rates for the period you can prove business-related travel expenses. However, the difference will be reported as wages on your Form W-2. This excess amount is considered paid under a nonaccountable plan (discussed later).

Your employer sends you on a 5-day business trip to Phoenix in March 2023 and gives you a $400 ($80 × 5 days) advance to cover your M&IE. The federal per diem for M&IE for Phoenix is $69. Your trip lasts only 3 days. Under your employer's accountable plan, you must return the $160 ($80 × 2 days) advance for the 2 days you didn’t travel. For the 3 days you did travel, you don’t have to return the $33 difference between the allowance you received and the federal rate for Phoenix (($80 − $69) × 3 days). However, the $33 will be reported on your Form W-2 as wages.

Nonaccountable Plans

A nonaccountable plan is a reimbursement or expense allowance arrangement that doesn’t meet one or more of the three rules listed earlier under Accountable Plans .

In addition, even if your employer has an accountable plan, the following payments will be treated as being paid under a nonaccountable plan.

Excess reimbursements you fail to return to your employer.

Reimbursement of nondeductible expenses related to your employer's business. See Reimbursement of nondeductible expenses , earlier, under Accountable Plans.

If you aren’t sure if the reimbursement or expense allowance arrangement is an accountable or nonaccountable plan, ask your employer.

Your employer will combine the amount of any reimbursement or other expense allowance paid to you under a nonaccountable plan with your wages, salary, or other pay. Your employer will report the total in box 1 of your Form W-2.

You must complete Form 2106 and itemize your deductions to deduct your expenses for travel, transportation, or non-entertainment-related meals. Your meal and entertainment expenses will be subject to the 50% Limit discussed in chapter 2.

Your employer gives you $1,000 a month ($12,000 total for the year) for your business expenses. You don’t have to provide any proof of your expenses to your employer, and you can keep any funds that you don’t spend.

You are a performing artist and are being reimbursed under a nonaccountable plan. Your employer will include the $12,000 on your Form W-2 as if it were wages. If you want to deduct your business expenses, you must complete Form 2106 and itemize your deductions.

You are paid $2,000 a month by your employer. On days that you travel away from home on business, your employer designates $50 a day of your salary as paid to reimburse your travel expenses. Because your employer would pay your monthly salary whether or not you were traveling away from home, the arrangement is a nonaccountable plan. No part of the $50 a day designated by your employer is treated as paid under an accountable plan.

Rules for Independent Contractors and Clients

This section provides rules for independent contractors who incur expenses on behalf of a client or customer. The rules cover the reporting and substantiation of certain expenses discussed in this publication, and they affect both independent contractors and their clients or customers.

You are considered an independent contractor if you are self-employed and you perform services for a customer or client.

Accounting to Your Client

If you received a reimbursement or an allowance for travel, or gift expenses that you incurred on behalf of a client, you should provide an adequate accounting of these expenses to your client. If you don’t account to your client for these expenses, you must include any reimbursements or allowances in income. You must keep adequate records of these expenses whether or not you account to your client for these expenses.

If you don’t separately account for and seek reimbursement for meal and entertainment expenses in connection with providing services for a client, you are subject to the 50% limit on those expenses. See 50% Limit in chapter 2.

As a self-employed person, you adequately account by reporting your actual expenses. You should follow the recordkeeping rules in chapter 5 .

For information on how to report expenses on your tax return, see Self-employed at the beginning of this chapter.

Required Records for Clients or Customers

If you are a client or customer, you generally don’t have to keep records to prove the reimbursements or allowances you give, in the course of your business, to an independent contractor for travel or gift expenses incurred on your behalf. However, you must keep records if:

You reimburse the contractor for entertainment expenses incurred on your behalf, and

The contractor adequately accounts to you for these expenses.

If the contractor adequately accounts to you for non-entertainment-related meal expenses, you (the client or customer) must keep records documenting each element of the expense, as explained in chapter 5 . Use your records as proof for a deduction on your tax return. If non-entertainment-related meal expenses are accounted for separately, you are subject to the 50% limit on meals. If the contractor adequately accounts to you for reimbursed amounts, you don’t have to report the amounts on an information return.

If the contractor doesn’t adequately account to you for allowances or reimbursements of non-entertainment-related meal expenses, you don’t have to keep records of these items. You aren’t subject to the 50% limit on meals in this case. You can deduct the reimbursements or allowances as payment for services if they are ordinary and necessary business expenses. However, you must file Form 1099-MISC to report amounts paid to the independent contractor if the total of the reimbursements and any other fees is $600 or more during the calendar year.

How To Use Per Diem Rate Tables

This section contains information about the per diem rate substantiation methods available and the choice of rates you must make for the last 3 months of the year.

The Two Substantiation Methods

IRS Notices list the localities that are treated under the high-low substantiation method as high-cost localities for all or part of the year. Notice 2022-44, available at IRS.gov/irb/2022-41_IRB#NOT-2022-44 , lists the high-cost localities that are eligible for $297 (which includes $74 for meals and incidental expenses (M&IE)) per diem, effective October 1, 2022. For travel on or after October 1, 2022, all other localities within the continental United States (CONUS) are eligible for $204 (which includes $64 for M&IE) per diem under the high-low method.

Notice 2023-68, available at IRS.gov/irb/2023-41_IRB#NOT-2023-68 , lists the high-cost localities that are eligible for $309 (which includes $74 for M&IE) per diem, effective October 1, 2023. For travel on or after October 1, 2023, the per diem for all other localities increased to $214 (which includes $64 for M&IE).

Regular federal per diem rates are published by the General Services Administration (GSA). Both tables include the separate rate for M&IE for each locality. The rates listed for FY2023 at GSA.gov/travel/plan-book/per-diem-rates are effective October 1, 2022, and those listed for FY2024 are effective October 1, 2023. The standard rate for all locations within CONUS not specifically listed for FY2023 is $157 ($98 for lodging and $59 for M&IE). For FY2024, this rate increases to $166 ($107 for lodging and $59 for M&IE).

Transition Rules

The transition period covers the last 3 months of the calendar year, from the time that new rates are effective (generally, October 1) through December 31. During this period, you may generally change to the new rates or finish out the year with the rates you had been using.

If you use the high-low substantiation method, when new rates become effective (generally, October 1), you can either continue with the rates you used for the first part of the year or change to the new rates. However, you must continue using the high-low method for the rest of the calendar year (through December 31). If you are an employer, you must use the same rates for all employees reimbursed under the high-low method during that calendar year.

The new rates and localities for the high-low method are included each year in a notice that is generally published in mid to late September. You can find the notice in the weekly Internal Revenue Bulletin (IRB) at IRS.gov/IRB , or visit IRS.gov and enter “Special Per Diem Rates” in the search box.

New CONUS per diem rates become effective on October 1 of each year and remain in effect through September 30 of the following year. Employees being reimbursed under the per diem rate method during the first 9 months of a year (January 1–September 30) must continue under the same method through the end of that calendar year (December 31). However, for travel by these employees from October 1 through December 31, you can choose to continue using the same per diem rates or use the new rates.

The new federal CONUS per diem rates are published each year, generally early in September. Go to GSA.gov/travel/plan-book/per-diem-rates .

Completing Form 2106

For tax years beginning after 2017, the Form 2106 will be used by Armed Forces reservists, qualified performing artists, fee-basis state or local government officials, and employees with impairment-related work expenses. Due to the suspension of miscellaneous itemized deductions subject to the 2% floor under section 67(a), employees who do not fit into one of the listed categories may not use Form 2106.

This section briefly describes how employees complete Forms 2106. Table 6-1 explains what the employer reports on Form W-2 and what the employee reports on Form 2106. The instructions for the forms have more information on completing them.

Table 6-1. Reporting Travel, Nonentertainment Meal, Gift, and Car Expenses and Reimbursements

If you used a car to perform your job as an employee, you may be able to deduct certain car expenses. These are generally figured on Form 2106, Part II, and then claimed on Form 2106, Part I, line 1, column A.

If you claim any deduction for the business use of a car, you must answer certain questions and provide information about the use of the car. The information relates to the following items.

Date placed in service.

Mileage (total, business, commuting, and other personal mileage).

Percentage of business use.

After-work use.

Use of other vehicles.

Whether you have evidence to support the deduction.

Whether or not the evidence is written.

If you claim a deduction based on the standard mileage rate instead of your actual expenses, you must complete Form 2106, Part II, Section B. The amount on line 22 (Section B) is carried to Form 2106, Part I, line 1. In addition, on Part I, line 2, you can deduct parking fees and tolls that apply to the business use of the car. See Standard Mileage Rate in chapter 4 for information on using this rate.

If you claim a deduction based on actual car expenses, you must complete Form 2106, Part II, Section C. In addition, unless you lease your car, you must complete Section D to show your depreciation deduction and any section 179 deduction you claim.

If you are still using a car that is fully depreciated, continue to complete Section C. Since you have no depreciation deduction, enter zero on line 28. In this case, don’t complete Section D.

If you claim car rental expenses on Form 2106, line 24a, you may have to reduce that expense by an inclusion amount , as described in chapter 4. If so, you can show your car expenses and any inclusion amount as follows.

Figure the inclusion amount without taking into account your business-use percentage for the tax year.

Report the inclusion amount from (1) on Form 2106, Part II, line 24b.

Report on line 24c the net amount of car rental expenses (total car rental expenses minus the inclusion amount figured in (1)).

Show your transportation expenses that didn’t involve overnight travel on Form 2106, line 2, column A. Also include on this line business expenses you have for parking fees and tolls. Don’t include expenses of operating your car or expenses of commuting between your home and work.

Show your other employee business expenses on Form 2106, lines 3 and 4, column A. Don’t include expenses for nonentertainment meals on those lines. Line 4 is for expenses such as gifts, educational expenses (tuition and books), office-in-the-home expenses, and trade and professional publications.

Show the full amount of your expenses for nonentertainment business-related meals on Form 2106, line 5, column B. Include meals while away from your tax home overnight and other business meals. Enter 50% of the line 8, column B, meal expenses on line 9, column B.

If you are subject to the Department of Transportation's “hours of service” limits (as explained earlier under Individuals subject to hours of service limits in chapter 2), use 80% instead of 50% for meals while away from your tax home.

Enter on Form 2106, line 7, the amounts your employer (or third party) reimbursed you that weren’t reported to you in box 1 of your Form W-2. This includes any amount reported under code L in box 12 of Form W-2.

If you were reimbursed under an accountable plan and want to deduct excess expenses that weren’t reimbursed, you may have to allocate your reimbursement. This is necessary when your employer pays your reimbursement in the following manner.

Pays you a single amount that covers non-entertainment-related meals and/or entertainment, as well as other business expenses.

Doesn’t clearly identify how much is for deductible non-entertainment-related meals.

Your employer paid you an expense allowance of $12,000 this year under an accountable plan. The $12,000 payment consisted of $5,000 for airfare and $7,000 for non-entertainment-related meals, and car expenses. Your employer didn’t clearly show how much of the $7,000 was for the cost of deductible non-entertainment-related meals. You actually spent $14,000 during the year ($5,500 for airfare, $4,500 for non-entertainment-related meals, and $4,000 for car expenses).

Since the airfare allowance was clearly identified, you know that $5,000 of the payment goes in column A, line 7, of Form 2106. To allocate the remaining $7,000, you use the worksheet from the Instructions for Form 2106. Your completed worksheet follows.

Reimbursement Allocation Worksheet (Keep for your records.)

If you are a government official paid on a fee basis, a performing artist, an Armed Forces reservist, or a disabled employee with impairment-related work expenses, see Special Rules , later.

Your employee business expenses may be subject to either of the limits described next. They are figured in the following order on the specified form.

Certain non-entertainment-related meal expenses are subject to a 50% limit. Generally, entertainment expenses are nondeductible if paid or incurred after December 2017. If you are an employee, you figure this limit on line 9 of Form 2106. (See 50% Limit in chapter 2.)

Limitations on itemized deductions are suspended for tax years beginning after 2017 and before tax year January 2026, per section 68(g).

Special Rules

This section discusses special rules that apply only to Armed Forces reservists, government officials who are paid on a fee basis, performing artists, and disabled employees with impairment-related work expenses. For tax years beginning after 2017, they are the only taxpayers who can use Form 2106.

Armed Forces Reservists Traveling More Than 100 Miles From Home

If you are a member of a reserve component of the Armed Forces of the United States and you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you can deduct your travel expenses as an adjustment to gross income rather than as a miscellaneous itemized deduction. The amount of expenses you can deduct as an adjustment to gross income is limited to the regular federal per diem rate (for lodging and M&IE) and the standard mileage rate (for car expenses) plus any parking fees, ferry fees, and tolls. See Per Diem and Car Allowances , earlier, for more information.

You are a member of a reserve component of the Armed Forces of the United States if you are in the Army, Navy, Marine Corps, Air Force, or Coast Guard Reserve; the Army National Guard of the United States; the Air National Guard of the United States; or the Reserve Corps of the Public Health Service.

If you have reserve-related travel that takes you more than 100 miles from home, you should first complete Form 2106. Then include your expenses for reserve travel over 100 miles from home, up to the federal rate, from Form 2106, line 10, in the total on Schedule 1 (Form 1040), line 12.

You can’t deduct expenses of travel that doesn’t take you more than 100 miles from home as an adjustment to gross income.

Certain fee-basis officials can claim their employee business expenses on Form 2106.

Fee-basis officials are persons who are employed by a state or local government and who are paid in whole or in part on a fee basis. They can deduct their business expenses in performing services in that job as an adjustment to gross income rather than as a miscellaneous itemized deduction.

If you are a fee-basis official, include your employee business expenses from Form 2106, line 10, in the total on Schedule 1 (Form 1040), line 12.

Expenses of Certain Performing Artists

If you are a performing artist, you may qualify to deduct your employee business expenses as an adjustment to gross income. To qualify, you must meet all of the following requirements.

During the tax year, you perform services in the performing arts as an employee for at least two employers.

You receive at least $200 each from any two of these employers.

Your related performing-arts business expenses are more than 10% of your gross income from the performance of those services.

Your adjusted gross income isn’t more than $16,000 before deducting these business expenses.

If you are married, you must file a joint return unless you lived apart from your spouse at all times during the tax year. If you file a joint return, you must figure requirements (1), (2), and (3) separately for both you and your spouse. However, requirement (4) applies to your and your spouse's combined adjusted gross income.

If you meet all of the above requirements, you should first complete Form 2106. Then you include your performing-arts-related expenses from Form 2106, line 10, in the total on Schedule 1 (Form 1040), line 12.

If you don’t meet all of the above requirements, you don’t qualify to deduct your expenses as an adjustment to gross income.

If you are an employee with a physical or mental disability, your impairment-related work expenses aren’t subject to the 2%-of-adjusted-gross-income limit that applies to most other employee business expenses. After you complete Form 2106, enter your impairment-related work expenses from Form 2106, line 10, on Schedule A (Form 1040), line 16, and identify the type and amount of this expense on the line next to line 16.

Impairment-related work expenses are your allowable expenses for attendant care at your workplace and other expenses in connection with your workplace that are necessary for you to be able to work.

You are disabled if you have:

A physical or mental disability (for example, blindness or deafness) that functionally limits your being employed; or

A physical or mental impairment (for example, a sight or hearing impairment) that substantially limits one or more of your major life activities, such as performing manual tasks, walking, speaking, breathing, learning, or working.

You can deduct impairment-related expenses as business expenses if they are:

Necessary for you to do your work satisfactorily;

For goods and services not required or used, other than incidentally, in your personal activities; and

Not specifically covered under other income tax laws.

You are blind. You must use a reader to do your work. You use the reader both during your regular working hours at your place of work and outside your regular working hours away from your place of work. The reader's services are only for your work. You can deduct your expenses for the reader as business expenses.

You are deaf. You must use a sign language interpreter during meetings while you are at work. The interpreter's services are used only for your work. You can deduct your expenses for the interpreter as business expenses.

How To Get Tax Help

If you have questions about a tax issue; need help preparing your tax return; or want to download free publications, forms, or instructions, go to IRS.gov to find resources that can help you right away.

After receiving all your wage and earnings statements (Forms W-2, W-2G, 1099-R, 1099-MISC, 1099-NEC, etc.); unemployment compensation statements (by mail or in a digital format) or other government payment statements (Form 1099-G); and interest, dividend, and retirement statements from banks and investment firms (Forms 1099), you have several options to choose from to prepare and file your tax return. You can prepare the tax return yourself, see if you qualify for free tax preparation, or hire a tax professional to prepare your return.

Your options for preparing and filing your return online or in your local community, if you qualify, include the following.

Free File. This program lets you prepare and file your federal individual income tax return for free using software or Free File Fillable Forms. However, state tax preparation may not be available through Free File. Go to IRS.gov/FreeFile to see if you qualify for free online federal tax preparation, e-filing, and direct deposit or payment options.

VITA. The Volunteer Income Tax Assistance (VITA) program offers free tax help to people with low-to-moderate incomes, persons with disabilities, and limited-English-speaking taxpayers who need help preparing their own tax returns. Go to IRS.gov/VITA , download the free IRS2Go app, or call 800-906-9887 for information on free tax return preparation.

TCE. The Tax Counseling for the Elderly (TCE) program offers free tax help for all taxpayers, particularly those who are 60 years of age and older. TCE volunteers specialize in answering questions about pensions and retirement-related issues unique to seniors. Go to IRS.gov/TCE or download the free IRS2Go app for information on free tax return preparation.

MilTax. Members of the U.S. Armed Forces and qualified veterans may use MilTax, a free tax service offered by the Department of Defense through Military OneSource. For more information, go to MilitaryOneSource ( MilitaryOneSource.mil/MilTax ).

Also, the IRS offers Free Fillable Forms, which can be completed online and then e-filed regardless of income.

Go to IRS.gov/Tools for the following.

The Earned Income Tax Credit Assistant ( IRS.gov/EITCAssistant ) determines if you’re eligible for the earned income credit (EIC).

The Online EIN Application ( IRS.gov/EIN ) helps you get an employer identification number (EIN) at no cost.

The Tax Withholding Estimator ( IRS.gov/W4App ) makes it easier for you to estimate the federal income tax you want your employer to withhold from your paycheck. This is tax withholding. See how your withholding affects your refund, take-home pay, or tax due.

The First Time Homebuyer Credit Account Look-up ( IRS.gov/HomeBuyer ) tool provides information on your repayments and account balance.

The Sales Tax Deduction Calculator ( IRS.gov/SalesTax ) figures the amount you can claim if you itemize deductions on Schedule A (Form 1040).

Go to IRS.gov/Help : A variety of tools to help you get answers to some of the most common tax questions.

Go to IRS.gov/ITA : The Interactive Tax Assistant, a tool that will ask you questions and, based on your input, provide answers on a number of tax topics.

Go to IRS.gov/Forms : Find forms, instructions, and publications. You will find details on the most recent tax changes and interactive links to help you find answers to your questions.

You may also be able to access tax information in your e-filing software.

There are various types of tax return preparers, including enrolled agents, certified public accountants (CPAs), accountants, and many others who don’t have professional credentials. If you choose to have someone prepare your tax return, choose that preparer wisely. A paid tax preparer is:

Primarily responsible for the overall substantive accuracy of your return,

Required to sign the return, and

Required to include their preparer tax identification number (PTIN).

The Social Security Administration (SSA) offers online service at SSA.gov/employer for fast, free, and secure W-2 filing options to CPAs, accountants, enrolled agents, and individuals who process Form W-2, Wage and Tax Statement, and Form W-2c, Corrected Wage and Tax Statement.

Go to IRS.gov/SocialMedia to see the various social media tools the IRS uses to share the latest information on tax changes, scam alerts, initiatives, products, and services. At the IRS, privacy and security are our highest priority. We use these tools to share public information with you. Don’t post your social security number (SSN) or other confidential information on social media sites. Always protect your identity when using any social networking site.

The following IRS YouTube channels provide short, informative videos on various tax-related topics in English, Spanish, and ASL.

Youtube.com/irsvideos .

Youtube.com/irsvideosmultilingua .

Youtube.com/irsvideosASL .

The IRS Video portal ( IRSVideos.gov ) contains video and audio presentations for individuals, small businesses, and tax professionals.

You can find information on IRS.gov/MyLanguage if English isn’t your native language.

The IRS is committed to serving taxpayers with limited-English proficiency (LEP) by offering OPI services. The OPI Service is a federally funded program and is available at Taxpayer Assistance Centers (TACs), most IRS offices, and every VITA/TCE tax return site. The OPI Service is accessible in more than 350 languages.

Taxpayers who need information about accessibility services can call 833-690-0598. The Accessibility Helpline can answer questions related to current and future accessibility products and services available in alternative media formats (for example, braille, large print, audio, etc.). The Accessibility Helpline does not have access to your IRS account. For help with tax law, refunds, or account-related issues, go to IRS.gov/LetUsHelp .

Form 9000, Alternative Media Preference, or Form 9000(SP) allows you to elect to receive certain types of written correspondence in the following formats.

Standard Print.

Large Print.

Audio (MP3).

Plain Text File (TXT).

Braille Ready File (BRF).

Go to IRS.gov/DisasterRelief to review the available disaster tax relief.

Go to IRS.gov/Forms to view, download, or print all the forms, instructions, and publications you may need. Or, you can go to IRS.gov/OrderForms to place an order.

Download and view most tax publications and instructions (including the Instructions for Form 1040) on mobile devices as eBooks at IRS.gov/eBooks .

IRS eBooks have been tested using Apple's iBooks for iPad. Our eBooks haven’t been tested on other dedicated eBook readers, and eBook functionality may not operate as intended.

Go to IRS.gov/Account to securely access information about your federal tax account.

View the amount you owe and a breakdown by tax year.

See payment plan details or apply for a new payment plan.

Make a payment or view 5 years of payment history and any pending or scheduled payments.

Access your tax records, including key data from your most recent tax return, and transcripts.

View digital copies of select notices from the IRS.

Approve or reject authorization requests from tax professionals.

View your address on file or manage your communication preferences.

With an online account, you can access a variety of information to help you during the filing season. You can get a transcript, review your most recently filed tax return, and get your adjusted gross income. Create or access your online account at IRS.gov/Account .

This tool lets your tax professional submit an authorization request to access your individual taxpayer IRS online account. For more information, go to IRS.gov/TaxProAccount .

The safest and easiest way to receive a tax refund is to e-file and choose direct deposit, which securely and electronically transfers your refund directly into your financial account. Direct deposit also avoids the possibility that your check could be lost, stolen, destroyed, or returned undeliverable to the IRS. Eight in 10 taxpayers use direct deposit to receive their refunds. If you don’t have a bank account, go to IRS.gov/DirectDeposit for more information on where to find a bank or credit union that can open an account online.

Tax-related identity theft happens when someone steals your personal information to commit tax fraud. Your taxes can be affected if your SSN is used to file a fraudulent return or to claim a refund or credit.

The IRS doesn’t initiate contact with taxpayers by email, text messages (including shortened links), telephone calls, or social media channels to request or verify personal or financial information. This includes requests for personal identification numbers (PINs), passwords, or similar information for credit cards, banks, or other financial accounts.

Go to IRS.gov/IdentityTheft , the IRS Identity Theft Central webpage, for information on identity theft and data security protection for taxpayers, tax professionals, and businesses. If your SSN has been lost or stolen or you suspect you’re a victim of tax-related identity theft, you can learn what steps you should take.

Get an Identity Protection PIN (IP PIN). IP PINs are six-digit numbers assigned to taxpayers to help prevent the misuse of their SSNs on fraudulent federal income tax returns. When you have an IP PIN, it prevents someone else from filing a tax return with your SSN. To learn more, go to IRS.gov/IPPIN .

Go to IRS.gov/Refunds .

Download the official IRS2Go app to your mobile device to check your refund status.

Call the automated refund hotline at 800-829-1954.

Payments of U.S. tax must be remitted to the IRS in U.S. dollars. Digital assets are not accepted. Go to IRS.gov/Payments for information on how to make a payment using any of the following options.

IRS Direct Pay : Pay your individual tax bill or estimated tax payment directly from your checking or savings account at no cost to you.

Debit Card, Credit Card, or Digital Wallet : Choose an approved payment processor to pay online or by phone.

Electronic Funds Withdrawal : Schedule a payment when filing your federal taxes using tax return preparation software or through a tax professional.

Electronic Federal Tax Payment System : Best option for businesses. Enrollment is required.

Check or Money Order : Mail your payment to the address listed on the notice or instructions.

Cash : You may be able to pay your taxes with cash at a participating retail store.

Same-Day Wire : You may be able to do same-day wire from your financial institution. Contact your financial institution for availability, cost, and time frames.

Note. The IRS uses the latest encryption technology to ensure that the electronic payments you make online, by phone, or from a mobile device using the IRS2Go app are safe and secure. Paying electronically is quick, easy, and faster than mailing in a check or money order.

Go to IRS.gov/Payments for more information about your options.

Apply for an online payment agreement ( IRS.gov/OPA ) to meet your tax obligation in monthly installments if you can’t pay your taxes in full today. Once you complete the online process, you will receive immediate notification of whether your agreement has been approved.

Use the Offer in Compromise Pre-Qualifier to see if you can settle your tax debt for less than the full amount you owe. For more information on the Offer in Compromise program, go to IRS.gov/OIC .

Go to IRS.gov/Form1040X for information and updates.

Go to IRS.gov/WMAR to track the status of Form 1040-X amended returns.

Go to IRS.gov/Notices to find additional information about responding to an IRS notice or letter.

You can now upload responses to all notices and letters using the Document Upload Tool. For notices that require additional action, taxpayers will be redirected appropriately on IRS.gov to take further action. To learn more about the tool, go to IRS.gov/Upload .

You can use Schedule LEP (Form 1040), Request for Change in Language Preference, to state a preference to receive notices, letters, or other written communications from the IRS in an alternative language. You may not immediately receive written communications in the requested language. The IRS’s commitment to LEP taxpayers is part of a multi-year timeline that began providing translations in 2023. You will continue to receive communications, including notices and letters, in English until they are translated to your preferred language.

Keep in mind, many questions can be answered on IRS.gov without visiting a TAC. Go to IRS.gov/LetUsHelp for the topics people ask about most. If you still need help, TACs provide tax help when a tax issue can’t be handled online or by phone. All TACs now provide service by appointment, so you’ll know in advance that you can get the service you need without long wait times. Before you visit, go to IRS.gov/TACLocator to find the nearest TAC and to check hours, available services, and appointment options. Or, on the IRS2Go app, under the Stay Connected tab, choose the Contact Us option and click on “Local Offices.”

The Taxpayer Advocate Service (TAS) Is Here To Help You

TAS is an independent organization within the IRS that helps taxpayers and protects taxpayer rights. TAS strives to ensure that every taxpayer is treated fairly and that you know and understand your rights under the Taxpayer Bill of Rights .

The Taxpayer Bill of Rights describes 10 basic rights that all taxpayers have when dealing with the IRS. Go to TaxpayerAdvocate.IRS.gov to help you understand what these rights mean to you and how they apply. These are your rights. Know them. Use them.

TAS can help you resolve problems that you can’t resolve with the IRS. And their service is free. If you qualify for their assistance, you will be assigned to one advocate who will work with you throughout the process and will do everything possible to resolve your issue. TAS can help you if:

Your problem is causing financial difficulty for you, your family, or your business;

You face (or your business is facing) an immediate threat of adverse action; or

You’ve tried repeatedly to contact the IRS but no one has responded, or the IRS hasn’t responded by the date promised.

TAS has offices in every state, the District of Columbia, and Puerto Rico . To find your advocate’s number:

Go to TaxpayerAdvocate.IRS.gov/Contact-Us ;

Download Pub. 1546, The Taxpayer Advocate Service Is Your Voice at the IRS, available at IRS.gov/pub/irs-pdf/p1546.pdf ;

Call the IRS toll free at 800-TAX-FORM (800-829-3676) to order a copy of Pub. 1546;

Check your local directory; or

Call TAS toll free at 877-777-4778.

TAS works to resolve large-scale problems that affect many taxpayers. If you know of one of these broad issues, report it to TAS at IRS.gov/SAMS . Be sure to not include any personal taxpayer information.

LITCs are independent from the IRS and TAS. LITCs represent individuals whose income is below a certain level and who need to resolve tax problems with the IRS. LITCs can represent taxpayers in audits, appeals, and tax collection disputes before the IRS and in court. In addition, LITCs can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. Services are offered for free or a small fee. For more information or to find an LITC near you, go to the LITC page at TaxpayerAdvocate.IRS.gov/LITC or see IRS Pub. 4134, Low Income Taxpayer Clinic List , at IRS.gov/pub/irs-pdf/p4134.pdf .

Appendices A-1 through A-6 show the lease inclusion amounts that you may need to report if you first leased a passenger automobile (including a truck and van) in 2018 through 2023 for 30 days or more.

If any of these apply to you, use the appendix for the year you first leased the car. (See Leasing a Car in chapter 4.)

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• Travel Reimbursement Policy: A Comprehensive Guide

Starting a journey for a corporate excursion can be a whirlpool of commotion, but the genuine expedition frequently commences upon arrival, when confronted with a heap of receipts and the intimidating mission of maneuvering through your organization’s protocol for its travel reimbursement policy . This guide acts as your essential resource for understanding and mastering the intricacies of these policies, ensuring that you receive reimbursement for every eligible penny spent.

Understanding the Basics: What is a Travel Reimbursement Policy?

At its core, a travel reimbursement policy is a set of rules that governs how employees can claim expenses incurred on business trips. These guidelines are tailored to each company, detailing eligible expenses and the process for submitting claims. They’re the blueprint for fair compensation, covering transportation, lodging, meals, and other incidental costs.

Expense Categories

• Transportation: Flights, trains, taxis, and more.
• Accommodation: Hotels and rentals.
• Meals and Entertainment: Daily allowances based on location.
• Incidentals: Parking fees, internet charges, etc.

Spend Limits

These policies often set spending limits to prevent excessive claims, such as daily meal caps or maximum hotel rates.

Required Documentation

Receipts, invoices, and boarding passes are the keystones of a solid claim, providing the evidence needed to back up your expenses.

Approval Process

Understanding the chain of command for approvals is crucial to a smooth reimbursement experience.

Eligible Expenses: What Can You Claim?

Knowing what you can claim is half the battle. From efficient expense management solutions to transportation costs, here’s a breakdown of typical reimbursable expenses:

Transportation Costs

• Airfare, train tickets, rental cars, and taxi fares.
• Keep all travel documents as proof.

Accommodation Expenses

• Hotel stays and rentals are reimbursable.
• Save hotel bills or rental agreements.

Meals and Entertainment Allowances

• Companies usually provide a daily meal allowance.
• Document your meal expenses within the set limits.

Incidental Expenses

• Claim parking fees, internet charges, and tips.

Appropriate Documentation: How to Keep Track of Your Expenses

Organization is key when it comes to reimbursement. Here’s how to keep your expenses in check:

Save All Receipts

Collect and save every receipt related to your business expenses. Consider using a receipt management app for digital storage and easy access.

Record Details

For each expense, jot down the date, location, and purpose. This will streamline your claim process.

Use Digital Tools

Embrace digital tools and apps for expense tracking. They can automate the process, making it less of a chore.

Submission Procedures: Navigating the Reimbursement Process

With your documentation in order, it’s time to submit your claim. Here’s a step-by-step guide:

Create an Expense Report

Compile a detailed report of your expenses, complete with all supporting documents.

Submit Your Expense Report

Follow your company’s procedures, whether it’s through an online portal or via email, to submit your report.

Reimbursement Timelines: When Can You Expect to Get Paid?

Timelines for reimbursement vary, but most companies have set periods for processing claims. Stay informed about these timelines and follow up if necessary.

Tips and Strategies for Maximizing Your Reimbursement

Maximizing your reimbursement is an art. Here’s how to master it:

Review your company’s policy before your trip to understand the coverage and limits.

Keep Track of Expenses in Real-Time

Document expenses as they occur to ensure accuracy and ease the reimbursement process.

Submit Claims Promptly

Don’t delay in submitting your expense report. The quicker you submit, the faster you’ll be reimbursed.

Common Pitfalls to Avoid: Mistakes that Could Delay or Deny Your Reimbursement

Even with the best intentions, mistakes can happen. Here’s what to avoid:

Inadequate Documentation

Lack of proper receipts and invoices is a common reason for reimbursement hiccups.

Non-Compliance with Policy Guidelines

Stick to the rules set out in your company’s policy to avoid any reimbursement roadblocks.

Travel Reimbursement Policy Best Practices: Recommendations for Employers

For employers, crafting a clear and concise policy is paramount. Here are some best practices:

Clear Communication

Ensure all employees are well-versed in the policy’s details, from eligible expenses to submission guidelines.

Simplify Procedures

Streamline the process to avoid confusion and make it easier for employees to submit their claims. As we navigate the complexities of travel reimbursement, it’s clear that a solution like Clyr can transform this often cumbersome process into a seamless experience. With Clyr’s ability to integrate with major management platforms and provide real-time expense notifications, the days of manual tracking and lengthy reimbursement cycles can be a thing of the past.

Crafting a Travel Reimbursement Policy That Works for Everyone Leveraging Technology for Efficient Reimbursement 

In the age of digital transformation, leveraging technology is not just a convenience—it’s a necessity for efficient expense management solutions. With the right tools, the reimbursement process can be significantly streamlined, reducing the time from submission to payment. Here’s how technology can make a difference: 

• Automated Financial Reporting for Out-of-Office Teams : For teams that are constantly on the move, automated financial reporting can be a game-changer. It ensures that expenses are logged and categorized accurately, which is essential for timely reimbursement. 
• Integration-Friendly Financial Tools for Property Management : Property management teams often juggle multiple tasks and expenses. Integration-friendly financial tools can synchronize financial data across platforms, making it easier to track and manage expenses. 
• Real-Time Expense Tracking Software : Real-time tracking allows for immediate recording of expenses, which can prevent the loss of receipts and ensure that no expense goes unclaimed. 

By adopting top financial reporting software for field teams, companies can benefit from a more cohesive and transparent expense management process. Clyr, for instance, offers seamless financial data synchronization for field services, ensuring that every dollar spent is accounted for and reimbursed accordingly. 

The Role of Mobile Apps in Expense Management 

Mobile apps have revolutionized the way we manage our expenses on the go. They offer the convenience of capturing receipts and tracking expenses in real-time, which is particularly beneficial for employees who are often out of the office. Here are some advantages of using mobile apps for expense management: 

1. Instant Receipt Capture : Snap a photo of your receipt, and it’s securely stored and ready for your expense report. 

2. On-the-Spot Expense Entry : Enter expenses as they happen, reducing the risk of forgetting or losing track of them. 

3. Accessibility : Access your expense records anywhere, anytime, right from your smartphone. 

For example, a receipt management app can simplify the process of collecting and organizing receipts, making it easier for employees to submit accurate expense reports. This not only saves time but also reduces the likelihood of errors that could delay reimbursement.

How to Handle International Travel Expenses 

International travel adds another layer of complexity to expense management. Currency conversions, varying tax laws, and additional documentation requirements can complicate the reimbursement process. Here are some tips for handling international travel expenses: 

• Understand Currency Exchange Rates : Keep track of the exchange rates at the time of each transaction to ensure accurate reimbursement. 
• Know the Tax Implications : Different countries have different tax laws. Be aware of what can and cannot be claimed as a business expense. 
•   Use Efficient Expense Management Solutions : Choose a platform that can handle multiple currencies and automate the conversion process. 

For businesses with international operations, it’s crucial to have efficient expense management solutions that can adapt to the complexities of global travel. This not only simplifies the reimbursement process but also ensures compliance with international financial regulations. 

Addressing Common Questions About Travel Reimbursement 

Travel reimbursement policies can be complex, and employees often have questions about what they can claim and how to go about it. Here are some common questions and their answers: 

• What if I lose a receipt?- Check if your company accepts credit card statements or if they have a specific policy for lost receipts. Some companies may allow a signed statement explaining the expense. 
• Can I claim expenses for leisure activities during a business trip? – Typically, only business-related expenses are reimbursable. However, some companies may allow for a reasonable amount of leisure expenses if they do not add additional cost to the trip. 
• How do I claim mileage if I use my personal car?- Companies usually reimburse mileage at a standard rate. Keep a log of your business travel mileage to submit with your expense report. 
• How can I address a delay in my reimbursement? – Take the initiative to follow up with your finance department. While delays can happen, it is crucial to verify that your claim is being processed.

By addressing these questions proactively, companies can alleviate concerns and make the reimbursement process smoother for everyone. 

The Future of Travel Reimbursement: Trends and Predictions 

The landscape of travel reimbursement is evolving with technology and changing work patterns. Here are some trends and predictions for the future: 

• Increased Automation : With platforms like Clyr, we can expect more expense management automation , reducing manual entry and speeding up the reimbursement cycle. 
• Mobile-First Solutions : As remote work becomes more common, mobile apps will play a larger role in expense management. 
• Personalized Expense Policies : Companies may start to offer more personalized policies that cater to individual needs and work habits. 
• Integration with Travel Booking : Seamless integration with travel booking systems will allow for pre-approval of expenses and automatic tracking. 

These advancements will not only make the process more efficient but also more employee-friendly, leading to higher satisfaction and compliance.

Case Studies: Successful Reimbursement Stories 

Let’s explore a few case studies where companies have successfully implemented efficient expense management solutions: 

• A Tech Startup: By using expense report automation , a growing tech company reduced its reimbursement cycle from weeks to just a few days, improving employee satisfaction. 
• A Consulting Firm: With the adoption of real-time expense tracking software, consultants could submit expenses on the go, leading to real-time budget updates and better financial planning. 
• A Nonprofit Organization : By simplifying job costing with financial software, a nonprofit was able to allocate funds more accurately and report to donors more transparently. 

These stories highlight the positive impact of adopting modern expense management practices. 

Expert Insights: Interviews with Finance Professionals 

In conversations with finance professionals, several key points are consistently highlighted: 

• The Importance of Policy Clarity : Clear policies prevent confusion and ensure that employees know what’s expected of them. 
• The Role of Technology: There’s a consensus that technology, especially expense reporting in QuickBooks and similar integrations, is crucial for efficiency. 
• Employee Training: Educating employees on the use of expense management tools is essential for maximizing their benefits. These insights from experts underscore the need for companies to invest in both technology and employee training. 

The Intersection of Travel Policies and Employee Satisfaction 

Employee satisfaction is closely tied to how travel policies are structured and implemented. A fair and transparent policy can lead to: 

• Boosted Morale: The sense of being valued among employees is heightened when they are assured that their expenses will be reimbursed effortlessly.
• Better Compliance: Clear guidelines and easy-to-use tools encourage employees to comply with the policy. 
• Attracting Talent: Competitive reimbursement policies can be a factor in attracting and retaining top talent. 

By considering employee satisfaction, companies can create policies that are beneficial for both the staff and the organization. 

Crafting a Travel Reimbursement Policy That Works for Everyone 

Creating a travel reimbursement policy that meets the needs of both the company and its employees involves several key steps: 

• Gather Input: Include feedback from employees who travel frequently to understand their needs and challenges. 
• Define Clear Guidelines: Establish what is and isn’t reimbursable, and under what circumstances. 
• Leverage Technology: Implement tools like Clyr to streamline the process and reduce administrative burdens. 
• Regularly Review and Update: As business needs and travel norms evolve, so should your policy. 

By crafting a well-thought-out policy, companies can ensure a smooth reimbursement process that supports their financial goals and keeps employees content. 

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The ABCs of Travel Expense Reimbursement: A Beginner’s Handbook

Traveling for work can be an exciting adventure, but it often comes with a myriad of expenses. Fortunately, many employers offer travel expense reimbursement to ease the financial burden on their employees. In this beginner’s handbook, we’ll explore the world of travel expense reimbursement , understanding its intricacies, and learn about Zaggle EMS which can make the process much smoother.

Understanding Travel Expense Reimbursement

Travel Expense Reimbursement is a process where an employer reimburses an employee for expenses incurred during a business trip. These expenses can include transportation, accommodation, meals, and miscellaneous costs. Employees need to understand what is eligible for reimbursement and how to track and document these expenses properly.

Common Travel Expenses

Let’s break down the common travel expenses into four categories:

A. Transportation Expenses: Transportation expenses can include airfare, train tickets, car rentals, and even parking fees. For instance, a flight from Hyderabad to Mumbai or a taxi ride to the conference venue can fall under this category.

B. Accommodation Expenses: Accommodation expenses cover the costs of staying in hotels, Airbnb rentals, or other lodging options. Whether it’s a five-star hotel in Delhi or a cozy guest house in the city, these expenses are eligible for reimbursement.

C. Meals and Dining Expenses: This category covers the cost of food and dining while on a business trip. It includes breakfast, lunch, dinner, and even snacks. Whether you’re dining at a fancy restaurant or grabbing a quick sandwich on the go, these expenses add up.

D. Miscellaneous Expenses: Miscellaneous expenses can be a bit tricky, as they encompass a wide range of costs, from conference fees and dry cleaning to business calls and internet charges. It’s essential to keep track of these smaller expenses, as they can significantly impact your reimbursement.

Expense Tracking and Documentation

One of the main challenges in the travel expense reimbursement process is proper tracking and documentation. Keeping receipts and organizing expenses can be cumbersome, and paper records are prone to loss or damage.

One of the primary difficulties lies in the proper tracking and documentation of expenses . Keeping physical receipts and records can be cumbersome, leading to potential errors, lost paperwork, or delays in reimbursement. Efficient expense tracking and reporting are key to overcoming these challenges and ensuring a smooth reimbursement process.

This is where digital tools like Zaggle EMS play a crucial role, making the process more efficient and less error-prone.

A. Submitting Expense Reports

With Zaggle EMS, employees can submit expense reports conveniently, reducing paperwork and the risk of errors. Smart Scan, a feature within Zaggle EMS, allows you to create expenses by scanning receipts using OCR (Optical Character Recognition) technology. It’s available through the Zaggle mobile application. You can even attach up to three receipts per expense, making sure you have all the necessary documentation.

B. Reimbursement Process

Zaggle EMS streamlines the reimbursement process by providing a clear and structured platform for both employees and employers. It categorizes expenses, making it easier for organizations to understand where their money is going.

C. Approval Process

The approval process is a crucial step in the travel expense reimbursement journey, ensuring that expenses are legitimate and comply with company policies

Zaggle EMS allows you to establish a hierarchical or multi-stage approval flow to ensure expenses are reviewed by the right people in the organization. In Zaggle EMS, you can configure up to 5 levels of approval in your workflow. This flexibility accommodates the unique approval structures within various organizations, from small businesses to large enterprises.

The approval process is critical to maintaining financial responsibility within an organization and adhering to established policies. By configuring hierarchical approval flows, organizations can ensure that expense reports undergo the necessary scrutiny. Moreover, the flexibility in the number of approval levels and the ability to resubmit and approve rejected reports streamline the process, making travel expense reimbursement a transparent and accountable process for both employees and employers.

Tips for a Smooth Reimbursement Process

1. Stay Organized: Keep all your receipts in one place. Using digital tools like Zaggle EMS can help you store and organize them efficiently.

2. Submit Promptly: Don’t procrastinate in submitting your expense reports. The sooner you do, the quicker you’ll get reimbursed.

3. Know Your Company’s Policy : Familiarize yourself with your company’s reimbursement policy. Some expenses may have specific limits or requirements.

4. Double-check: Before submitting an expense report, double-check all the information. Accuracy is crucial to avoid any delays.

Travel expense reimbursement doesn’t have to be a daunting process. With the right knowledge and tools, such as Zaggle EMS , you can simplify the task of tracking, documenting, and reporting your expenses. By understanding the ABCs of travel expense reimbursement , you can make your business trips financially stress-free and focus on the work at hand. Remember, the key to a smooth reimbursement process is organization and the use of efficient digital tools. Safe travels!

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• Expense Reimbursements / IRS / Meals and Incidental Expenses / Mileage / Payroll / Per Diem Rates / Small business
• Complete Guide to Reimbursing Employees for Travel Expenses

Published September 2, 2020 · Updated April 21, 2021

When an employee travels away from the office and incurs expenses, the company should reimburse them. Whether travelling across the world or just driving their car to a client’s location, getting the reimbursement right isn’t hard.

Keep reading to learn how to make proper employee reimbursements.

Accountable Plans

You’ll first need to decide if you will implement an accountable or nonaccountable plan. This is just as it sounds; either you’ll have employees be accountable for business expense reimbursements or not.

All businesses should have an expense reimbursement plan in writing. This includes corporations, sole proprietors, the self-employed, and non-profits. Non-profits should be extremely careful when reimbursing disqualified persons because nonaccountable plan reimbursements not properly approved or recorded can cause significant tax exposure to the charitable organization.

An accountable plan must follow the IRS guidelines for expense reimbursement. To qualify, the following rules must be met:

• Expenses must be for business purposes.
• Expenses must be adequately reported to the company in reasonable time.
• Any excess reimbursement or allowance must be returned in a reasonable amount of time.

Any expense that doesn’t meet these three criteria is considered a reimbursement under a nonaccountable plan.

This distinction between these two types of plans is important because accountable plan reimbursements are not taxable to the employee, whereas nonaccountable plans are taxable.

Business Purpose

Expenses incurred as an employee while completing work for an employer have a business purpose. Examples include things like registration fees for a conference, taxi rides to the airport for a business trip, or meals while away on a business trip.

If however, an employer reimburses an employee for dinner when the employee works late, this does not qualify as a business purpose. This reimbursement would be taxable to the employee because it was made under a nonaccountable plan.

Reporting in a Reasonable Time

While what is considered a reasonable amount of time is subjective, the general rule is that all reimbursable expenses must be submitted within 60 days of when they were incurred.

Adequate reporting involves providing a record, like an expense report, of all expenses incurred and providing evidence, like receipts, to support the expenses.

Excess Reimbursement

If an employee receives a travel advance to cover travel expenses but spends less than the advance, the difference is an excess reimbursement and must be returned to the employer to not be taxable. If the excess isn’t returned in a reasonable amount of time, it’s taxable.

A reasonable period of time in this instance is generally deemed to be within 120 days of when the expense was incurred.

With a travel advance, employees should submit an expense report and receipts to substantiate all expenses.

Mileage and Business Use of Personal Vehicle

When an employee uses their personal vehicle for company business, you’ll need to reimburse them. You have three options.

• Standard mileage rate
• Actual costs
• Monthly allowance

Standard Mileage Rate

If you use the standard mileage rate, it is 57.5 cents per mile for 2020.

You can pay more, but the IRS’ safe-harbor threshold of 57.5 cents per mile will allow you a tax deduction without having to substantiate the rate.

Note that the IRS typically updates rates in December. So, you can expect to see the 2021 rate announced in December 2020. IRS 2021 Mileage Rates are here.

IRS Standard Mileage Rates 2020

Actual Costs

Instead of using the standard rate, you can reimburse employees for actual expenses.

The employee will sum up all the costs of owning the vehicle including everything from fuel, maintenance, tolls, registration, and insurance. And based upon the percentage of business miles driven, that portion of the total actual costs is reimbursed.

Monthly Allowance

Using the monthly allowance method is relatively easy. Each month you provide a set dollar amount to the employee.

If you require the employee to provide a mileage log at the end of the month, this will determine if any part of the allowance is taxable. If no mileage log is required, the entire allowance is taxable under an unaccountable plan.

If a mileage log is provided and the employee drove less than expected, they should return the excess allowance within 30 days. If they don’t, the excess becomes taxable to them.

An employee’s commute from their home to their normal place of business is not a reimbursable expense. Any business miles driven in excess of the commute miles is reimbursable.

For example, an employee’s normal round-trip commute is 20 miles. On Fridays, the employee works on-site at a client’s office that is 30 miles away from the employee’s home. So, the employee drives 60 miles round-trip on Fridays. Since this is longer than he would drive if he commuted to the office, you’ll want to reimburse the employee for 40 miles (60 miles – 20 miles).

Mileage Logs

Employees should keep mileage logs when using a personal vehicle for business use. The log should include:

• Employee’s name
• Description of vehicle
• Date of business use
• Purpose of business use
• Starting mileage on odometer
• Ending mileage on odometer
• Approval authorization

Here’s an example of a mileage log using Microsoft Excel.

Mileage log and expense report – employee reimbursement

Note that in this example, the employee drove from the office to a client and then back to the office. Therefore, there is no need to deduct commuting mileage.

But suppose, like in our example from above, that on Fridays the employee drives from home to the client’s location and back home. His mileage log would look like this:

Mileage log and expense report example – employee reimbursement

But what if in this example, the drive to the client’s office from the employee’s home was shorter than his regular commute? In this case there is nothing to reimburse and the employee enjoys the benefit of less driving.

What would happen if this same employee didn’t normally work on Fridays or he always worked from home on Fridays? Then the entire drive to the client’s office would be reimbursable since the employee’s normal work schedule didn’t require him to commute on Fridays.

Many employees will forget to deduct their normal commute from mileage reimbursement requests. You’ll want to remind them.

Direct Expense Reimbursement of Travel Expenses

For employees who travel frequently, providing them with a company credit card is ideal. But for those times when an employee must use their own money for business expenses, you’ll want to reimburse employees quickly.

For easy recordkeeping, have employees complete expense reports when seeking reimbursements. Like the mileage log, it will detail who incurred the expense and when, what it was for, and the amount.

You can reimburse your employees with cash; however best practices would be to pay with check or some other trackable means, like ACH.

Here’s an example of an easy expense report in Excel.

Travel expense report example – employee reimbursement

For each expense, the employee should include receipts to support the amounts requested.

Receipts for purchases should contain the amount, date, place, and a brief description of the expense.

For example, hotel receipts should include:

• The name and location of the hotel.
• The dates stayed.
• Separate amounts for charges (i.e. lodging, meals, or food).

Restaurant and meal receipts should include:

• The name and location of the restaurant.
• The names of people in attendance.
• The date and amount of the meal.

You may choose to reimburse employees for meal tips. Be sure to have a clear policy of what will be reimbursed and what will not. For example, you’ll reimburse up to 20% for tips. Anything above that will not be reimbursed.

You’ll also need to consider your policy for lost receipts. You can still reimburse but have the employee fill out a missing receipt form to document the expense.

In lieu of direct expense reimbursement, consider using a per diem.

A per diem provides the employee with a specified dollar amount per day to use on meals, snacks, lodging, or other miscellaneous purchases. Larger expenses like airfare would be paid using the direct expense reimbursement method or paid for directly by the company.

Per diems should be prorated for partial days of travel. Acceptable methods include the ¾’s method or any other method you choose that is reasonable.  The ¾’s method adds ¾ of a daily per diem rate on departure days and another ¾’s on return days.

The IRS sets per diem rates for cities and metropolitan areas. More expensive locales have higher daily rates than cheaper cities. For example, the daily rate for high cost cities like San Francisco, Vail, Colorado, and Nashville, Tennessee is $297. And many cities are designated high cost for only portions of the year. Miami and Park City, Utah are considered high cost only from December 1 – March 31.

And if you’re not in a high cost city, the daily rate is $200. These per diem rates are often updated each year. So you’ll always want to check for the current rates.

For example, Dave is travelling to Seattle for business. Seattle is a high cost locale. He’s leaving on Monday and returning on Thursday. Seattle’s maximum per diem rate is $297 per day. Dave will receive $222.75 ($297 x ¾) for Monday and Thursday and the full $297 for Tuesday and Wednesday.

Per diems are not taxable income to your employee if you use the IRS rates and your employee provides an expense report with receipts. However, using higher rates will create taxable income for the amount above the federal rate. And not submitting an expense report and receipts will make the entire per diem taxable because you’ll have an unaccountable plan and your company will not have the required receipts to support the tax deduction.

If your business operates in the transportation sector (i.e. shipping, trucking, or rail, etc…), it’s important to note that there are different per diem limits and rules you must follow.

Entertainment Expenses

With the 2017 Tax Cuts and Jobs Act, entertainment expenses are no longer tax deductible for companies.

As an employer, you may still reimburse your employees for entertainment expenses; however, these reimbursements will need to be segregated so that they are not included on your tax return. Examples of entertainment expenses include tickets to entertain clients at sporting events or country club fees for golf memberships.

What documentation you require for entertainment reimbursements is up to you but best practices suggest following the same requirements for travel or mileage reimbursements.

Commingling

If travel or meals involve both a business and personal aspect, only the portion of the expense that is business related is reimbursable.  Expense reports and receipts should indicate whether there are any personal expenses.

For example, an employee makes a business trip to California from Georgia and elects to stay two days after business is finished for a mini-vacation. Best practices would have the employee check out of his hotel room and check back in using his personal credit card to pay the hotel bill for his extended stay. This way he has two different receipts; one for business and one for pleasure. However, if he doesn’t do that and the entire hotel stay is charged on the same receipt, you’ll need to back out the charges related to his personal stay.

None of this information should be taken as legal or financial advice, nor should it deter you from seeking the assistance of a licensed attorney, accountant, or financial services professional. But if you want to make sure your company’s policies for employee reimbursements are consistent with best practices, implementing these policies is a great place to start!

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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 Expense Reimbursement

Travel expense reimbursement - what to know.

Going on a business trip may sound fancy, but the fun only lasts so long until you’re faced with the reimbursement of travel expenses. It doesn’t have to cause a headache, though.

With Expensify Travel, the travel expense reimbursement process is simplified and enhanced. It’s available for free for those who have an Expensify plan. And if you have the Expensify Visa® Commercial Card , our travel management system helps you seamlessly track all your business travel expenses.

In this guide, we’ll walk you through everything you need to know so you can focus on your business trip instead of submitting and collecting receipts.

What is travel expense reimbursement? 

Travel expense reimbursement is the compensation process for employees who incur out-of-pocket expenses during business travel. Now, what are travel expenses? They include accommodation, transportation, meals, and other miscellaneous expenses related to business travel. 

In the corporate world, reimbursing travel expenses promotes fairness, talent retention, and accurate financial reporting. Essentially, it recognizes that employee travel expenses should be reimbursed timely. 

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Simplify travel expense reimbursement with Expensify

Expensify seamlessly simplifies the travel reimbursement process and expense management on the go. Employees can quickly request reimbursement, and employers can easily review and reimburse these expenses.

The following features make business travel expenses reimbursement as easy as 1, 2, 3:

Receipt scanning

With Expensify’s receipt scanning app, the analog way of receipt tracking is a thing of the past. Say goodbye to hanging on to those annoying little pieces of paper, which take up too much wallet space, and streamline the travel expense reimbursement process by simply taking a picture with your phone. Snap a photo of a receipt, submit your expense report when you’re back, and get paid stat!

Mileage tracking

If you’re using your car or renting a ride for your business trip, mileage tracking is another crucial thing to track. Rather than trying to track things in your phone’s note app or penciling in some miles on your dollar store notepad, just use Expensify to record mileage while traveling. Plus, Expensify stays up-to-date with the IRS mileage rate, so you don’t have to.

Spending limits

Want to ensure you’re never surprised by your employees’ final travel expense reimbursement request? With the Expensify Card, you can set Smart Limits. These limits let you set a cap for expenses beforehand, allowing the cardholder to spend up to the amount you’ve set before you approve them for more.

Corporate card reconciliation

Reconcile accounts without breaking a sweat by using the Expensify Corporate Card. With each swipe of a corporate card, a transaction is imported into Expensify, letting your top salesperson focus on closing the deal while having dinner with a client instead of worrying about getting a copy of the receipt. If your company is already using a corporate card they love, no worries - our credit card import feature works with several other bank cards.

Travel expense reimbursement form

When you return to the office after a business trip, filling out a travel expense reimbursement form is probably your last priority. But it’s necessary to get paid. Some companies have their internal process and forms for this, while others don’t have a standard. 

If your company doesn’t have a template for travel expense reimbursement, a quick Google search will yield plenty of options to help you get reimbursed ASAP. But why not make things easy on yourself?

Expensify is the ultimate travel expense reimbursement software. It allows employees to submit expense reports in a snap to their admin and enables admins to take them from there based on the company’s processes.

Employee travel expense reimbursement guidelines

Clear travel expense reimbursement guidelines for all company staff are essential. Employees should be appropriately compensated for their business-related travel expenses. 

Good guidelines typically outline the steps employees must follow to claim the categories of expenses eligible for reimbursement. When these guidelines are easy to understand and transparent, it is easier for managers to enforce them, ensuring all necessary documents are submitted and the proper steps have been taken. 

Of course, having travel expense reimbursement software like Expensify takes the guesswork out of company policies for business-related travel expenses, ensuring happy team members from sales to accounting and beyond.

Common questions about travel expense reimbursement

What are the irs rules about employee travel reimbursement.

The IRS (Internal Revenue Service) has specific rules regarding employee travel reimbursement. Employers can offer employees travel reimbursement for business-related expenses, such as transportation, lodging, meals, and other incidental costs incurred while on travel for work purposes.

Note that expenses must be considered ordinary and necessary for the employee's job. If the reimbursement meets the requirements specified by the IRS , it is generally tax-free for the employee. Cha-ching! It’s recommended that employees maintain records such as receipts, invoices, and travel itineraries to be reimbursed.

Whether you’re an employee or an employer, review the specific rules and guidelines the IRS provides to stay compliant. 

How do you request reimbursement for travel expenses?

It’s pretty simple to request to be reimbursed for your business travel expenses. Follow these steps to make sure you get your money back: 

Gather all documentation related to your business travel (flights, accommodation, meals, transport, etc.)

Complete a reimbursement form (if provided by your employer or organization) or write a travel expense reimbursement letter. 

Submit your documentation and form to the department that handles reimbursements. 

And if you have an Expensify plan or the Expensify Corporate Card , you can skip the paperwork and let the app do all the work for you. 

What is the travel reimbursement policy for 2024?

Regarding travel reimbursement policies, every company has its budget for business travel allowances for the year. So, check out your company or organization’s policies to understand what’s allowed and what's not. 

Most companies follow standards set by the IRS, but it’s always good to read up on the rules yourself to stay on top of things. Remember to keep track of any documentation from your business trip and track your mileage if you're responsible for driving during your trip.

Can a company refuse to reimburse travel expenses?

As with almost anything, a company can refuse to reimburse travel expenses. This is usually because of an organization’s policies or guidelines. For example, if your expenses fall outside of specified limits, you don’t have the proper documentation, or a company policy has been violated, your request may be rejected.

Are reimbursed expenses considered income?

Generally speaking, travel expense reimbursement is not considered income for individuals. This protects employees from having an extra tax burden for doing their job. Of course, ensure you have followed the proper steps to request reimbursement and keep copies for yourself, just in case.

Reimbursing travel expenses has never been easier

Travel expense reimbursement is the last thing you want to deal with after a business trip. So, reduce the extra work and use Expensify to track your expenses correctly.

From helping you keep track of mileage, scanning receipts, or setting spending limits, Expensify is here to make reimbursing travel expenses a breeze so you can focus on more critical business matters.

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"Shoeboxed makes it stupid simple to scan receipts...”

What to know about travel expense reimbursement + templates.

The best way to establish an accurate reimbursement strategy for your employee and your company is to ensure that you have an expense reimbursement policy in place and that it is covered with all applicable employees during the onboarding process.

Caryl Ramsey

Published on

June 2nd, 2023

Shoeboxed is an expense & receipt tracking app that helps you get reimbursed quickly, maximize tax deductions, and reduce the hassle of doing accounting.

Employers and employees should understand the business’s guidelines for  T&E  or travel expense reimbursement policies so that neither runs into any issues over business-related expenses down the road.

The IRS is pretty flexible with employers when it comes to employee reimbursement for business travel expenses while away on a company trip.

Table of Contents

Does travel expense reimbursement qualify as a deductible travel expense?

What the IRS is not flexible about is whether or not the travel-related expenses incurred on the business trip qualify as a deductible travel expense.

Employers can deduct “ordinary and necessary expenses” of employees traveling away from their tax home.

According to the IRS, any reimbursement that does not qualify as a deductible travel expense is considered employee wages.

What are “accountable” and “non-accountable” plans?

There are two methods for reimbursing workers for expenses incurred when traveling for business. These are the “accountable plan” and the “non-accountable” plan.

An “accountable plan” is based on the Internal Revenue Service’s guidelines for reimbursing employees for the actual travel costs so that the reimbursable expenses incurred are not counted as income.

This means that the reimbursements are not subject to W-2 reporting or withholding taxes.

The expenses, however, must be business-related. To qualify for the “accountable plan,” expenses must be business-related, reported accurately, and excess reimbursements issued.

If the company’s reimbursement process doesn’t meet the guidelines under federal law for the “accountable plan,” then the expenses fall under the “non-accountable plan.”

If a reimbursed cost is non-accountable, then it is subject to being taxed as part of the employee’s compensation, therefore, it must be reported on the W-2 form and is subject to withholding.

What is travel expense reimbursement?

Travel expense reimbursement is when you pay employees back for business expenses incurred while traveling.

The expenses that are reimbursed are dependent upon the reimbursement policies determined by your business.

A travel reimbursement policy should be set up by your business that specifies the rules and procedures regarding reimbursement for travel-related expenses.

Many companies are using traditional expense management systems where staff can use a credit card and submit refunded trip expenses after the trip ends.

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What common types of travel expenses qualify for deductible expense reimbursement?

As an optional reimbursement provider, you have a choice on whether or not to  reimburse employees for travel expenses .

Regardless, a clear reimbursement policy should be established within the company.

Some of the most typical reimbursable expenses include the following:

Transportation costs between your home and the business destination

Transportation between airport/station and hotel

Transportation between the hotel and the work location

Sending company-related supplies from your regular work location to your travel work destination

Business use of a rental car or the actual expenses of operating your personal vehicle when traveling away from home on business such as mileage reimbursement

The cost of parking your rental car can vary significantly depending on factors such as location, duration, and demand. Urban areas and popular tourist destinations often have higher parking fees, while off-peak times or less crowded areas may offer more affordable options

Lodging and meal expenses

Dry cleaning and laundry

Business communication expenses

Business related tips

Parking fees and tolls

How do expense reports play a role in a business’s expense reimbursement policy?

To prevent fraud and to keep company records updated and accurate, companies should  use expense reports  as part of their expense reimbursement policy.

The expense report should be used by employees to report incidental expenses such as travel expenses, business meals, and small purchases of supplies or equipment for the office.

Employees fill out these expense reports, which require the information of a typical transaction.

Some of the information found on an expense report include the vendor’s name, date paid, expense description, amount paid, and totals for each expense category .

Then the expense report is submitted to the company and according to the reimbursement policy, the employee is reimbursed.

See also: Expense Report Template Google Sheets: 4 Free Templates

Receipt requirements

It’s important to always have proof or documentation of the expenses that you incurred. The best proof is to provide the original receipt from the store, merchant, or a  receipt book .

Therefore, when turning in an expense report, always attach any  supporting documentation such as your receipts  to the expense report.

This safeguards the company against  expense fraud  and ensures that the company will have the documentation needed for tax deductions and any  audits  if requested.

Processing expense reports for travel reimbursements

Once expense reports are submitted to the company, the company is responsible for the accuracy of the expense reports.

The company has an obligation to check the expense report against its business travel and reimbursement policies.

This is meant as an assurance system for ensuring accurate compliance with corporate policies.

Deadlines for expense reimbursement

Businesses should establish monthly or quarterly deadlines for expense reports. This ensures that the business can claim the expense as a tax deduction.

It also ensures that records are kept more accurate and up-to-date, that an expense doesn’t fall through the cracks, and that the company maintains a more efficient cash flow.

Not only should there be a deadline for the employee to submit an expense report, but there also should be a deadline for when the employee will be reimbursed by the company.

4 Free travel expense reimbursement form templates

Whether you’re a new business looking for an easy way to keep up with eligible travel reimbursements or an employee that often travels for work, these free travel expense reimbursement form templates are a great way to record travel expenses and separate them from non travel reimbursements.

1. Hloom free travel expense reimbursement spreadsheet

Hloom free travel expense reimbursement spreadsheet for Excel.

Hloom offers a  free travel expense reimbursement spreadsheet  that you can use to report any travel expenses made while away on a business trip.

Employees’ travel expenses should be recorded in a concise, organized template so it’s easy to categorize eligible reimbursement claims, see if expenditures were within spending limits, and receive reimbursement all by looking at a single form.

Use this template to record:

The date, time, and location you traveled to

The meals you ate

The cost of lodging

Cost of transportation

Private vehicle license

This template is 100% free and customizable, so you can adjust the columns as needed to suit your company.

2. GeneralBlue simple free travel expense reimbursement form

This  free travel expense reimbursement form by GeneralBlue  is as easy as it gets. It’s an Excel template with 8 columns for recording the expenses incurred traveling for business.

With this straightforward form, you can record:

The date you traveled

A description of your trip

The cost of transportation

The cost of hotels

The cost of meals

Miscellaneous expenses

The total amount of travel expenses

There is also a line for employee and approval signatures so you have an official record of travel expenses and reimbursements.

3. U.S. General Services Administration travel expense reimbursement template

Travel expense reimbursement template from the U.S. General Services Administration.

For state employees, the U.S. GSA offers a  free travel expense reimbursement template  that you can use to record spending while out on state business.

This template has everything an employee would need to record official business expenses, including:

Department or establishment

Official business categories

Mileage, including fare or toll

Date traveled

Additional persons

Tips and miscellaneous expenses

Spaces for authorizing signatures

The U.S. GSA travel expense template has to be printed and written as a paper copy.

4. Vertex42 travel expense reimbursement sheet

The  Vertex42 travel expense reimbursement sheet  is available for free and can be downloaded as an Excel file or Google Sheet .

This expense report includes:

Description of travel

Air and transportation costs

Fuel and mileage costs

Conferences and seminars

Meals and tip costs

Entertainment

Other expenses

The total cost of expenses

There’s also a place for authorized signatures, department, manager name, employee ID, and more.

Bonus: Shoeboxed for receipt tracking and expense reports

Use Shoeboxed to capture your receipts and create detailed expense reports for reimbursement.

If you don’t want to deal with the hassle of keeping up with your receipts, manually inputting the expenses into a spreadsheet, or printing out an expense report for your boss,  Shoeboxed  can help!

Tracking receipts with Shoeboxed

Shoeboxed  is a great  travel management software  that allows you to snap photos of your receipts, digitally extract the important information, and categorize the expenses so that they’re easy to find and manage in your Shoeboxed account.

Break free from manual data entry ✨

Use Shoeboxed’s Magic Envelope to ship off your receipts and get them back as scanned data in a private, secure cloud-based account. 📁 30-day full money-back guarantee!

Creating expense reports for business travel expenses

Once your receipt details are uploaded to your  Shoeboxed account , you can select the receipts you want to put in your expense report and either export, print, or email them to the appropriate authority.

Shoeboxed will then create a detailed and organized  expense report  with images of your receipts attached so you can get reimbursed!

And if you didn’t think it could get any better, Shoeboxed also offers a  free mileage tracker  so you can effortlessly calculate business mileage and add it to your expense report.

Frequently asked questions

Can i get reimbursed for travel expenses.

The IRS offers two plans for reimbursing workers for travel expenses that are deductible: 1. Employers don’t have to pay employment tax by not including the reimbursement for travel-related expenses from the worker’s wages with the accountable plan; or 2. Employers will have to count all payments to workers as wages under a non-accountable plan.

What are travel reimbursements?

Travel compensation consists of reimbursements for out-of-pocket expenses by employees when they travel for work. The employee typically fills out an expense report and turns it in to the employer. Your employee’s costs will be affected according to your company and reimbursement policies. Travel insurance policies provide you with guidelines for reimbursement of travel expenses.

How much travel expense can I claim?

During business travel the actual cost of transport is 100% deducted—whether it is a flight ticket, train ticket, or bus ticket. Similarly, renting a motor vehicle can make your travel expenses deductible.

In conclusion

The best way to establish an accurate reimbursement strategy for your employee and your company is to ensure that you have an expense reimbursement policy in place and that it is covered by all applicable employees during the onboarding process.

Providing an expense report template makes it much easier for the employees and for those processing the expense reports.

The expense reports will also help to maximize tax deductions, make the audit process much smoother, and ensure that the employee is being reimbursed the correct amount.

Caryl Ramsey  has years of experience assisting in different aspects of bookkeeping, taxes, and customer service. She uses a variety of accounting software for setting up client information, reconciling accounts, coding expenses, running financial reports, and preparing tax returns. She is also experienced in setting up corporations with the State Corporation Commission and the IRS.

About Shoeboxed!

Shoeboxed  is a receipt scanning service with  receipt software  that supports multiple methods for receipt capture: send, scan, upload, forward, and more!

You can stuff your receipts into one of our Magic Envelopes (prepaid postage within the US). Use our receipt app ( iPhone ,  iPad  and  Android ) to snap a picture while on the go. Auto-import receipts from Gmail. Or forward a receipt to your designated Shoeboxed email address.

Turn your receipts into data and deductibles with our expense reports that include IRS-accepted receipt images.

Join over 1 million businesses scanning & organizing receipts, creating expense reports and more—with Shoeboxed.

Try  Shoeboxed  today!

Turn business receipts into data & deductibles

Join over 1 million businesses scanning receipts, creating expense reports, and reclaiming multiple hours every week—with Shoeboxed.

Everything You Need to Know About the Business Travel Tax Deduction

Justin is an IRS Enrolled Agent, allowing him to represent taxpayers before the IRS. He loves helping freelancers and small business owners save on taxes. He is also an attorney and works part-time with the Keeper Tax team.

You don’t have to fly first class and stay at a fancy hotel to claim travel expense tax deductions. Conferences, worksite visits, and even a change of scenery can (sometimes) qualify as business travel.

What counts as business travel?

The IRS does have a few simple guidelines for determining what counts as business travel. Your trip has to be:

• Mostly business
• An “ordinary and necessary” expense
• Someplace far away from your “tax home”

What counts as "mostly business"?

The IRS will measure your time away in days. If you spend more days doing business activities than not, your trip is considered "mostly business". Your travel days are counted as work days.

Special rules for traveling abroad

If you are traveling abroad for business purposes, you trip counts as " entirely for business " as long as you spend less than 25% of your time on personal activities (like vacationing). Your travel days count as work days.

So say you you head off to Zurich for nine days. You've got a seven-day run of conference talks, client meetings, and the travel it takes to get you there. You then tack on two days skiing on the nearby slopes.

Good news: Your trip still counts as "entirely for business." That's because two out of nine days is less than 25%.

What is an “ordinary and necessary” expense?

“Ordinary and necessary” means that the trip:

• Makes sense given your industry, and
• Was taken for the purpose of carrying out business activities

If you have a choice between two conferences — one in your hometown, and one in London — the British one wouldn’t be an ordinary and necessary expense.

What is your tax home?

A taxpayer can deduct travel expenses anytime you are traveling away from home but depending on where you work the IRS definition of “home” can get complicated.

Your tax home is often — but not always — where you live with your family (what the IRS calls your "family home"). When it comes to defining it, there are two factors to consider:

• What's your main place of business, and
• How large is your tax home

What's your main place of business?

If your main place of business is somewhere other than your family home, your tax home will be the former — where you work, not where your family lives.

For example, say you:

• Live with your family in Chicago, but
• Work in Milwaukee during the week (where you stay in hotels and eat in restaurants)

Then your tax home is Milwaukee. That's your main place of business, even if you travel back to your family home every weekend.

How large is your tax home?

In most cases, your tax home is the entire city or general area where your main place of business is located.

The “entire city” is easy to define but “general area” gets a bit tricker. For example, if you live in a rural area, then your general area may span several counties during a regular work week.

Rules for business travel

Want to check if your trip is tax-deductible? Make sure it follows these rules set by the IRS.

1. Your trip should take you away from your home base

A good rule of thumb is 100 miles. That’s about a two hour drive, or any kind of plane ride. To be able to claim all the possible travel deductions, your trip should require you to sleep somewhere that isn’t your home.

2. You should be working regular hours

In general, that means eight hours a day of work-related activity.

It’s fine to take personal time in the evenings, and you can still take weekends off. But you can’t take a half-hour call from Disneyland and call it a business trip.

Here's an example. Let’s say you’re a real estate agent living in Chicago. You travel to an industry conference in Las Vegas. You go to the conference during the day, go out in the evenings, and then stay the weekend. That’s a business trip!

3. The trip should last less than a year

Once you’ve been somewhere for over a year, you’re essentially living there. However, traveling for six months at a time is fine!

For example, say you’re a freelancer on Upwork, living in Seattle. You go down to stay with your sister in San Diego for the winter to expand your client network, and you work regular hours while you’re there. That counts as business travel.

What about digital nomads?

With the rise of remote-first workplaces, many freelancers choose to take their work with them as they travel the globe. There are a couple of requirements these expats have to meet if they want to write off travel costs.

Requirement #1: A tax home

Digital nomads have to be able to claim a particular foreign city as a tax home if they want to write off any travel expenses. You don't have to be there all the time — but it should be your professional home base when you're abroad.

For example, say you've rent a room or a studio apartment in Prague for the year. You regularly call clients and finish projects from there. You still travel a lot, for both work and play. But Prague is your tax home, so you can write off travel expenses.

Requirement #2: Some work-related reason for traveling

As long as you've got a tax home and some work-related reason for traveling, these excursion count as business trips. Plausible reasons include meeting with local clients, or attending a local conference and then extending your stay.

However, if you’re a freelance software developer working from Thailand because you like the weather, that unfortunately doesn't count as business travel.

The travel expenses you can write off

As a rule of thumb, all travel-related expenses on a business trip are tax-deductible. You can also claim meals while traveling, but be careful with entertainment expenses (like going out for drinks!).

Here are some common travel-related write-offs you can take.

🛫 All transportation

Any transportation costs are a travel tax deduction. This includes traveling by airplane, train, bus, or car. Baggage fees are deductible, and so are Uber rides to and from the airport.

Just remember: if a client is comping your airfare, or if you booked your ticket with frequent flier miles, then it isn't deductible since your cost was $0.

If you rent a car to go on a business trip, that rental is tax-deductible. If you drive your own vehicle, you can either take actual costs or use the standard mileage deduction. There's more info on that in our guide to deducting car expenses .

Hotels, motels, Airbnb stays, sublets on Craigslist, even reimbursing a friend for crashing on their couch: all of these are tax-deductible lodging expenses.

🥡 Meals while traveling

If your trip has you staying overnight — or even crashing somewhere for a few hours before you can head back — you can write off food expenses. Grabbing a burger alone or a coffee at your airport terminal counts! Even groceries and takeout are tax-deductible.

One important thing to keep in mind: You can usually deduct 50% of your meal costs. For 2021 and 2022, meals you get at restaurants are 100% tax-deductible. Go to the grocery store, though, and you’re limited to the usual 50%.

{upsell_block}

🌐 Wi-Fi and communications

Wi-Fi — on a plane or at your hotel — is completely deductible when you’re traveling for work. This also goes for other communication expenses, like hotspots and international calls.

If you need to ship things as part of your trip — think conference booth materials or extra clothes — those expenses are also tax-deductible.

👔 Dry cleaning

Need to look your best on the trip? You can write off related expenses, like laundry charges.

{write_off_block}

Travel expenses you can't deduct

Some travel costs may seem like no-brainers, but they're not actually tax-deductible. Here are a couple of common ones to watch our for.

The cost of bringing your child or spouse

If you bring your child or spouse on a business trip, your travel expense deductions get a little trickier. In general, the cost of bring other people on a business trip is considered personal expense — which means it's not deductible.

You can only deduct travel expenses if your child or spouse:

• Is an employee,
• Has a bona fide business purpose for traveling with you, and
• Would otherwise be allowed to deduct the travel expense on their own

Some hotel bill charges

Staying in a hotel may be required for travel purposes. That's why the room charge and taxes are deductible.

Some additional charges, though, won't qualify. Here are some examples of fees that aren't tax-deductible:

• Gym or fitness center fees
• Movie rental fees
• Game rental fees

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Where to claim travel expenses when filing your taxes

If you are self-employed, you will claim all your income tax deduction on the Schedule C. This is part of the Form 1040 that self-employed people complete ever year.

What happens if your business deductions are disallowed?

If the IRS challenges your business deduction and they are disallowed, there are potential penalties. This can happen if:

• The deduction was not legitimate and shouldn't have been claimed in the first place, or
• The deduction was legitimate, but you don't have the documentation to support it

When does the penalty come into play?

The 20% penalty is not automatic. It only applies if it allowed you to pay substantially less taxes than you normally would. In most cases, the IRS considers “substantially less” to mean you paid at least 10% less.

In practice, you would only reach this 10% threshold if the IRS disqualified a significant number of your travel deductions.

How much is the penalty?

The penalty is normally 20% of the difference between what you should have paid and what you actually paid. You also have to make up the original difference.

In total, this means you will be paying 120% of your original tax obligation: your original obligation, plus 20% penalty.

Justin W. Jones, EA, JD

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A Guide to Travel Expense Reimbursement Process

Table of Contents

Introduction

We live in a world where you can access multiple services anytime, anywhere, with a single click on our phones. You can now order food, book a hotel, rent a car, and perform other tasks successfully with just a smartphone and the internet. 

Business travel should be no different! You should be able to plan business trips with ease and receive travel expense reimbursements with equal ease. 

Travel expense reimbursement meaning

Surely, if you have friends, you know what reimbursement means. You pay on their behalf and they pay you back later! We know that in the “friend” scenario, it almost never comes back, but in travel expense reimbursement , your money comes back to you within a specific time limit. 

Today, in most organizations, reimbursement requests are entertained and processed manually or semi-automatically. Whether it is for employees or employers, this is nothing short of a nightmare. These manual processes are cumbersome and error-ridden, leading to long waiting periods. 

Does your organization suffer from the same travel reimbursement inefficiencies ? How long do employees in your organization wait before their expense claims are settled? 

It’s high time you switched to an agile system that can make your firm’s travel reimbursement hassle-free . Do you know that you can bring down the travel expense reimbursement cycle to 5 days or less? Read on as we deep dive into expense reimbursement .

Also, Read: A Guide to Travel and Expense Management

How does travel expense reimbursement work?

Travel expense reimbursement is the process of paying your employees back for the out-of-pocket expenses incurred during a business trip . The firm must reimburse the employee fully if the employee, during the business trip , had paid from his wallet for expenses such as travel, food, etc. 

Organizations globally verify the legitimacy of the expenses before reimbursing the employee. To do that, employees must submit a travel expense report with details of the actual cost . The line managers and finance teams then verify the report to ensure its legitimacy and compliance.

This entire process – if not automated – can take days or, worse, even months. Also, it can affect the employee’s productivity and negatively impact his morale – which will be reflected in his work! 

Is travel expense reimbursement mandatory for employers?

As per existing labor laws in any country, travel reimbursement is not mandatory. However, if employees of an organization travel for the company and spend out of their personal pocket during such travel, then the organization is obligated to reimburse such business travel expenses . 

To accommodate such expenses, organizations may consider providing a travel allowance for employees. On the other hand, on the provision of original receipts of expenses incurred, the amount may be reimbursed within a specific period (as decided by the organization).

How travel reimbursement benefits everyone ?

Here are some of the advantages of reimbursement: 

• Faster reimbursements will boost employee morale . 
• Travel expense reimbursement is considered business expenses that can be used for tax deductions.
• It can also positively impact employee efficiency and productivity

Let us look at this in more detail as we analyze the benefits for both employers and employees.

Benefits for employers

There are multiple benefits to automating travel reimbursement in your firm. Here are some of them: 

1. Reduce errors

In traditional expense reporting and travel reimbursement processes , there’s a high chance of committing errors. The employee could make this error while submitting the expense report , the manager while verifying, or the finance department. Worry no more. Automation can help eliminate errors in these processes. 

2. Eliminate paperwork 

You can eliminate your firm’s mind-boggling amount of paperwork by automating the entire travel reimbursement process . Your supervisors and finance teams no longer have to go through a ton of paperwork and then approve or reject the report.

Instead, by automating the process, they can now view the reports on a single screen and approve or reject them with a single click. Thus, making the entire process quick and efficient. 

Quick Read: 5 Easy Steps to Paperless Expense Filing

3. Greater policy compliance 

Automation is your best bet if you aim for greater policy compliance rates in your firm. By automating the reimbursement process , you can prevent reports that violate your company’s travel policy from getting reimbursed. Furthermore, in most expense management software, if there are any policy violations in the report, the system will flag it and notify both the user and approver.

4. Increased visibility

Using automated software for travel expense reimbursement , you can get better visibility of where your funds are being spent. Additionally, using the system, you can accurately find the categories you’re overspending or under-spending. Centralized spend visibility gives you better control over your funds and helps forecast future expenses. 

Benefits for employees

Now, let us look at how a good travel reimbursement process helps employees too.

1. Lowers the personal burden 

When you have a good travel expense reimbursement process in place, your employees feel assured that personal money spent on business expenses will be reimbursed. 

Any delays in the process may force them to be conscious of their spending habits. This may affect their liquidity when it comes to other essential personal expenses . 

2. Stress-free travel

Structured travel expense reimbursement processes ensure that employees’ business travel trips are stress-free. They do not have to worry about reimbursement. 

Timely settlements ensure that despite some lag in claim settlements , employees feel assured that if they provide original documents in support of their expenses, expenses will be reimbursed. 

3. Makes expense claims easy

A simple yet complete workflow for travel expense reimbursement ensures that employees stick to procedures and expense policies . Employees prefer clear-cut rules and easy-to-follow procedures as this benefits them too.

Also, Read: Corporate Travel Management

What are reimbursable travel expenses?

Certainly, not all expenses will be reimbursed by your company. So, how do you know what’s acceptable and what’s not? 

In this case, a comprehensive travel and expense policy works like a guide!

a) What is travel expense reimbursement policy? 

A travel reimbursement policy of a company is an official document that specifies the rules and procedures for travel expense reimbursement. Here are some of the aspects a travel reimbursement policy typically covers:

• Travel expenses your firm will cover
• Travel expenses your firm will not cover
• How employees should report expenses
• How and when will employees be reimbursed

b) What to include in a travel expense reimbursement policy? 

Since the travel and expense policy covers all aspects of travel expense reimbursement . It must be your “go-to” document for any clarifications in this regard. 

Let us look at the types of expenses that are included in the policy.

1. Travel expenses

The travel expense policy must detail the expenses that your firm will cover. Here are some of the travel-related expenses that most organizations cover: 

• Hotel accommodation
• Meals 
• Parking 

Make sure you mention the spending limits clearly, so the employees don’t overspend and end up not receiving reimbursement. 

2. Level of the employee

In some organizations, the level of the employee plays a significant role in the reimbursement process. In your travel policy, mention the business travel expenses you will reimburse at the employee level.

3. Non-employees

In some organizations, the travel policy states that employees can take their family and spouses along for the business trip. Some organizations also reimburse the expenses for the employee’s family members; if your firm is ready to do that, then state it in the policy.

4. Exclusions

In your expense policy, make sure you include the travel costs that will not be covered. This way, your employees will know where to spend their money. Here are some of the items that most companies do not reimburse:

• Alcohol 
• Flight and hotel room upgrades 
• expenses incurred on family members
• Non-policy compliant expenses 

5. Responsibility of employees

State all the steps your employees need to follow for reimbursement . In some companies, employees need to submit all the receipts along with their travel expense reports manually. On the other hand, in some companies, employees are required to submit it digitally. Make sure you add the reimbursement approval workflow into the policy. This way, your employees know whom to contact when reimbursement takes time. 

Mention the estimated time for the reimbursement to be reflected. This way, your employees will know when to expect the reimbursement. 

Employees’ daily allowance to cover business-related expenses is called per diem . Ensure you include per diem rates and other related information in the policy. 

So, that brings us to the question of what expenses are allowed and what are not.

c) Allowable expenses 

Here’s a list of all allowable travel and other incidental expenses that can be reimbursed: 

• Transportation
• Baggage fees
• Laundry costs 
• Visa charges

d) Non-allowable expenses 

All expenses that do not comply with your firm’s travel policies are non-allowable expenses. Also, personal expenses that employees incur are non-reimbursable . Here’s a list of non-allowable expenses: 

• Personal mobile bills
• Parking tickets and violations 

Also, Read: A Guide to Creating Corporate Travel Policy

Calculation of travel expenses for reimbursement

Calculation of travel expenses is an important aspect of expense management. Even if there are just a few expense claims, wrong calculations can have an impact. To avoid this, clarity on the process of calculation of travel expenses is essential.

Let us look at how to calculate travel expenses for reimbursement.

1. Calculate reimbursements using an expense report

A travel expense report is a document that contains a list of all expenses that the employee incurs during the trip. The sum of all those expenses is what constitutes the travel expense reimbursement amount. 

Travel expense reports may be submitted through manual or digital methods. Manual methods are time-consuming and prone to errors. Digital methods are quick and easy to use. So, both employees and employers benefit from such a process.

Want to know more? Check out our blog on travel and expense report

2. Authenticate claims

One of the most important stages is to authenticate the claims made for expenses incurred during travel for business purposes . Travel and expense policies clearly mention claimable expenses . The finance team must validate these claims by ensuring that they are compliant. 

For instance, they may cross-verify that amounts are within the permissible limits or that the mileage rate used is the right one for the employee (based on grade and other parameters).

3. Match expense amounts against original receipts

The next stage involves confirming that the expenses claimed were actually incurred by the employee, matching the actual expense (no fraud or padding), and proof of such expenses is attached to the expense report .

For instance, an employee may have claimed an amount and attached the original receipt for dry cleaning . A quick look at the policies may confirm that dry cleaning charges are not reimbursed by your company.

4. Settle claims

Once the above parameters are met and the claim is valid, you can settle the employee’s claim. For instance, for transportation costs , your finance team must verify that the employee has only claimed fuel costs (within permissible limits for their employment grade) where he has used a personal vehicle .

Then, you can either directly credit the employee’s bank account or use any other process that is followed in your organization. 

Also, Read: A Guide to Business Travel Management

Challenges in travel expense reimbursement

1. manual processes.

Manual processes are a big hurdle for quick and efficient travel expense reimbursements . From the time that an expense report is filed to when the claim is eventually settled, it crosses too many hands. It not only increases the time takes to settle the claim but increases the chances of errors or fraud .

2. Unclear travel and expense policies

Unless your travel and expense policy is comprehensive and clear, you are looking at problems and endless delays in expense reimbursements . You must simplify your travel and expense policy so employees understand it better and stick to the rules. Similarly, when the approval workflows are clearly defined and straightforward, the process is smoother and quicker. 

3. Complicated workflows

Complicated workflows can seriously hamper your travel expense reimbursement process . Whether you have linear or multi-layered workflows , it is important to keep them simple and straightforward. The clarity in the approval process goes a long way in ensuring that employees get approval quickly and the claims move to the next stage as quickly as possible. 

Best practices to streamline your travel expense reimbursement process

Looking to speed up the travel reimbursement process in your firm? Here are our best practices to make your company’s reimbursement process hassle-free .

1. Submitting expense reports on time

Delays in submitting expense reports are one of the important reasons for a slow employee travel expenses reimbursement process . To tackle this issue, set a deadline for submitting expense reports to which your employees must adhere. 

2. Follow an expense policy 

A clear and well-defined expense policy has multiple advantages. From reducing fraudulent claims to increasing the policy compliance rate to eliminating out-of-policy spending , expense policy can positively impact your reimbursement process . If you do not have an expense policy for your firm, we recommend formulating one to make the reimbursement process smooth. 

3. Implement an effective validation process

For the finance team, it’s arduous to go through each report and check for compliance. Due to this strenuous task, the chances of approving reports violating your policy are also very high. That’s why it’s always best to automate validation to speed up the process.

4. Automate travel expense reimbursement

By automating the travel expense reimbursement process , you can save both money and time for your organization. Additionally, automation can make the entire process quick and error-free . 

Also, Read: Expense Management Automation

Impact of automation on travel expense reimbursement

Do you know that organizations that have moved to an automated expense management system have quoted “ Reimbursing employees faster ” as the second biggest reason for digitizing T&E

When every other part of your business is being digitized, why ignore employee travel expenses ? 

Manual processes hinder productivity and are time-consuming. It is time to move to a simpler travel expense reimbursement process – for employers and employees. Now, reimbursing employees can be quick and easy. With an automated and efficient travel expense reimbursement system, you can

• Save on several hundred man-hours dedicated to authenticating and reconciling corporate travel expenditures.
• Digitally access travel expense data in real-time allowing your finance team to spend time on other critical parts of your business.
• Perform expense tracking digitally and access data instantly for better reporting and analysis. 

Essential features in an ideal travel expense reimbursement system

According to a 2020 Forrester study, 30% of finance leaders in top firms are unhappy with their T&E solution. Therefore, before zeroing in on a travel reimbursement system , here are the things you should look for: 

1. It has an advanced OCR technology 

Manually filling expense forms with data from invoices and receipts is a thing of the past now. Thanks to optical character recognition in most expense software , your employees now just have to click the receipt picture. OCR will then automatically capture the invoice data and create an expense. 

2. It should auto-capture expenses from all sources

Let’s accept it, manually filling out expense forms requires a special kind of superpower. Pick an expense software that auto-captures expenses from multiple sources like emails, SMS, credit, and debit card statements, TMCs, etc. 

3. It can detect non-policy-compliant expenses 

An efficient travel reimbursement system must automatically detect expenditures that do not comply with your company’s T&E policy and notify you. Thus helping you in maintaining a higher compliance rate. 

4. It has the best UI 

Spare your employees from using automated systems with an old, cluttered user interface. Instead, pick software that has the best and easy-to-use UI. 

5. GST compliance

Pick a T&E system that makes your firm GST compliant and allows you to claim ITC for all booking and expenses. 

Also, Read: 10 Best Travel Management Software

Simplify your travel expense reimbursement with Happay

If you’re looking for the best automated T&E management system to make your firm’s expense reporting and reimbursement process robust, your search ends with Happay . Known as Asia’s #1 T&E management solution for India’s conglomerates, we offer a complete paperless expense management solution with incredible cost savings.

Here are some of the key features of Happay: 

• You can offer a superior employee experience for your traveling employees and become a tech-savvy employer to attract the best talent in the industry.
• We offer 100% visibility as you enjoy better predictability and control over your T&E budget.
• Whether it is international or domestic , employees can self-book flights and hotels in one user-friendly app on mobile or the web. Pre-spend violations , real-time reporting, and policy configurations can be customized and are included in the system’s architecture.
• File travel expenses on the go using the in-built OCR technology in Happay
• Happay auto-captures expenses from email, text messages, credit card statements, and other sources. 
• Automate per diem based on expense data
• Happay’s GST return module can help gather all your GST data in one place. Save more on your travel spending with accurate ITC claims

And the benefits do not end here. Want to know more about Happay? Schedule a demo with us today. 

Travel expense reimbursements are always a sore point for employees as it is associated with emails back and forth along with long wait times. However, it does not have to be so. 

Apart from numerous other benefits, automated expense management solutions ensure that the turnaround time for travel expense reimbursements is short. As employees enjoy the quick settlements, finance teams can stay stress-free as reconciliations and other reporting are insightful and automatic. 

In most companies, for travel expense reimbursement, employees must submit expense reports along with proof of expenses.

As long as the reimbursement is for expenditures incurred for the organization, such expenses are not taxable income. Whether it is an allowance included in the income is a question that can be answered by looking at the employee’s individual salary details.

Here are a few expenses that businesses reimburse:  a) Air ticket/ train fare b) Cab fare  c) Meals during the travel

Since travel expense reimbursement is not an income for the employee, it need not be reported as income by the organization too.

Related Posts:

• 10 Best Travel Management Software and Systems in 2023
• Corporate Travel Management: The Business Guide
• 10 Best Corporate Travel Management Software in 2023
• The Ultimate Guide to Travel and Expense Management…
• A Guide to Creating a Corporate Travel Policy 2023…
• Corporate Travel Program: Why Does Your Business Need One?

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Detailed guide on travel expense reimbursement

Business travel expense reimbursement is an essential expense for any company. You must ensure that the reimbursement system of your company is automated and streamlined to deliver increased productivity and help save time for the employees to work on other human-centric tasks.

Manual travel expense reimbursements processing and reporting has numerous errors that, in turn, cost the company more hours spent on fixing the mistakes.

An automated system saves the company any extra effort or money spent on error correction, long reconciliation processes, and data management. A complete travel and expense automation system will help your company establish a streamlined travel process without having to worry about reimbursements.

What is travel expense reimbursement?

Travel expense reimbursement is the process of compensating your employees for all the business expenses made during any work trip. The employees are reimbursed for all the travel expenses that they have to make out of their pockets. These valid compensation expenses include travel tickets, meals, hotel reservations, and any purchases made for the clients. 

To get reimbursed, employees are supposed to collect all the physical receipts and any other documents as proof of the spending and submit those to the finance department.

Every company has its own reimbursement claim submission system. Once the employees give in claims, the finance department checks all the receipts with other documents and ensures that everything is in compliance with the company travel expense policy . According to that, the finance department approves or rejects the claims.

What is the purpose of the travel expense reimbursement process?

Travel expense reimbursement process is essential because business travel expenses can be heavy on the employees’ pockets. It is not the employee's obligation to utilize their personal funds to pay for the business trip. It is the responsibility of every organization to reimburse its employees for any out-of-pocket expense made for the business. 

If your company takes reimbursement seriously and timely completes the process, your employees will be happy to for in the company. Satisfied employees mean smooth business functioning.

 Along with this, reimbursements are categorized under business expenses that are viable as tax deductions. Plus, having a reimbursement process makes it easier for the finance department to settle all claims, and you get greater visibility into the expenses of the business.

What are the travel expenses that are reimbursable?

1. Transportation expenses

The first and essential travel expense, transportation cost, has to be reimbursed. All kinds of transport used on the business trip are supposed to be in the reimbursement claim. These include train or flight tickets, public transport in the city, car rental costs, or ride shares.

 Employees must have valid transport expense proof like ticket copy, payment receipts, etc., as proof of transaction.

2. Accommodation expenses

Business travel expense reimbursement also includes accommodation expenses. Hotel or any other accommodation place charges, valet or parking expenses, internet or sim fees, etc. You can always set expense limits so that your employees know what can be booked inside the budget. This help in sidestepping the problem of overspending. 

3. Business-related entertainment expenses

Another category considered under corporate travel expense reimbursement is business-related entertainment expenses. These are costs employees have to incur to keep the clients or potential clients entertained and engaged. This can be social events, concerts, dinner parties, etc.

Also, if the employee spends on food, drinks, and other refreshments for the clients, those are also reimbursed. 

4. Meal expenses

If the employees buy meals for themselves or any refreshments, those are also supposed to be reimbursed by the company. These meals can be for themselves or for the clients. Daily meals can be counted under the per-diem expense of the employee as well. The daily allowance given to a travelling employee is called the per-diem expense. 

5. Incidental expenses

Incidental expenses are those minimal costs incurred apart from the major costs of traveling. Room service charges, tips to hotel staff or chauffeur, customer gifts, laundry service charges, etc. These expenses can be reimbursed after the trip. 

Experience hassle-free reimbursements

What is a travel expense reimbursement policy.

In general, a travel expense reimbursement policy is a document that has all the details and guidelines related to your business travel expenses reimbursement.

It should have enough information regarding everything starting from pre-travel planning to reimbursable amount settlements. Typically, you would also want to include details such as what types of travel expenses are and are not considered reimbursable.

Any hard limits you have on the amount that your company will cover should be stated as well. Procedures such as expense reports and approvals will also make it onto your travel expense reimbursement policy.

How to create a successful travel expense reimbursement policy?

There’s no reason to confuse your employees, especially when it comes to a policy that they’ll have to reference a lot.

 Having a simple travel expense reimbursement policy that is easily understandable by all employees will streamline all processes involved.

2. Comprehensible

Your policy for travel expenses reimbursement is no good if your employees have no clue how to follow it. You want your travel expense reimbursement policy to have plenty of details about the different steps involved while keeping it user-friendly.

3. Structured

Considering that there are a lot of details on travel reimbursement that you want to include, it’s important to maintain your policy and keep it neatly structured. This way, it’s easier to make changes and adjustments if necessary.

What to include in a travel expense reimbursement policy?

1. expense categories.

As mentioned, there are different types of expenses that will be incurred during business trips. This includes transportation expenses, lodging expenses, client entertainment expenses, and many more.

You’ll want to break down which expenses fall into what category in your travel expense reimbursement policy to provide clarity to your employees.

2. List of expenses that are reimbursable

Make a list of what expenses are applicable for travel reimbursement. While the details may differ from company to company, reimbursable expenses typically include transportation, accommodation, meals, client gifts, visa charges, and other business-related expenses.

Make sure that your employees know who the right person to ask is for expenses that they’re unsure about.

3. List of expenses that are non-reimbursable

Any personal expenses incurred by your employees during the duration of their trip are not reimbursable. This means that should an employee choose to do any personal shopping, those expenses will not be allowed for travel reimbursement.

Any travel upgrades your employees choose to get that are outside of the initial travel budget will also not be reimbursed.

4. Taxes on expenses and reimbursements

You want to be sure that you comply with tax regulations regarding your travel expenses and reimbursements. Note that employee allowances and reimbursements are two separate things.

For tax purposes, ensure you are aware of the differences and what your obligations are for paying travel expenses reimbursement specifically.

5. Budget for each expense category

To make sure that you don’t get an inflated number when your employees submit their reimbursement claims at the end of each business trip, you want to create a daily budget for each expense category.

This daily allowance is called per diem. Specify what the per diem rates are to encourage employees to stay within budget.

6. Specify the receipt and documentation requirements

Every company will have its own reimbursement claim requirements. While some might only require an upload of the receipt, others might want more details and supporting documents.

Make sure that when you create your travel expense reimbursement policy, you’re clear on what your reimburses need to get the travel expenses reimbursement claims processed.

7. Reimbursement plan

To make sure that everyone involved in the travel reimbursement process is on the same page, you want to include a section about how you plan to do reimbursements.

This makes sure that everyone’s expectations are aligned with one another. You also want to outline what are the responsibilities of everyone involved and what is involved.

8. Fraud and policy compliance

At the end of the day, a travel expense reimbursement policy is written to have everyone in your company adhere to it to ensure compliance and develop standardized processes.

It’s important that you outline a section about policy compliance and what the consequences are for deviating from the policy or fraud attempts.

Reimbursement made simple

What are the steps of a travel reimbursement process.

1. Pre-travel approval

Before travel expense reimbursement comes pre-travel approval, employees are supposed to submit a request and all related documents for the trip. This request mentions all the details of the travel, like place, time, dates, purpose, expense budget requirement, etc.

 It is essential that your company has a requirest template or set system through which the employees put in their travel requests and get approvals. 

2. Expense guidelines and policies

Once the employee travel request is submitted, the company is supposed to process the further details. You have to give the employees expense guidelines, a list of all reimbursable expenses, clarity on reimbursement policies, and an approved expense budget. This is done to ensure that the employees have a clear understanding of everything that is allowed and the expense policy limits. 

3. Expense documentation

While the employees are on a business trip, it is essential that they document every expense. Receipts of meals and drinks, client entertainment activity receipts, travel tickets, hotel reservation and stay documents, etc. All these have to be collected and stored. These receipts and documents are then attached while claiming reimbursement. 

4. Expense report preparation

When the employees come back from the business trip, they are supposed to prepare a report of all the expenses incurred during the trip. This report has to include details of all the expenses, like category, amount, merchant, etc.

Along with this report, the receipt of the purchases is attached. The finance department collects these reports and calculates the total reimbursements. 

5. Review and approval

The finance department scans every detail and matches the claim amount to the original receipt attached. This is done for extra ensure that all expenses are legit and everything is in compliance with the company expense policy.

Plus, sometimes, employees slip extra expenses into the expense report . The finance team has to make sure that every expense has a document proof of it. Once checked, the reimbursement is approved.

6. Reimbursement processing

Once all the details are sorted and the reimbursement claim is approved, the next step is to process the amount. The reimbursement amount is usually given to the employees along with their salaries. 

7. Reconciliation and reporting

After everything is done, travel expense reimbursement is added to the accounting sheet. All the details are rechecked, and reconciliation is initiated. Every expense is recorded, and then all necessary data is put into reports to maintain a database.

Suggested read: What is account reconciliation, types, benefits and procedure

How to streamline your travel reimbursement process?

Have a well-defined reimbursement policy.

Streamlining your travel reimbursement process starts by preparing a reimbursement policy. This must be easy to understand and should be distributed amongst all employees.

A comprehensive business travel expenses reimbursement policy must include things like reimbursable and non-reimbursable expenses, dates and guidelines to submit expense claims, deadlines, etc.

Along with this, mention the rules for pre-approvals and how the claim amount will be transferred. A clear understanding comes with a comprehensive reimbursement policy.

Digitize expense management

Another effective technique to streamline your travel reimbursement process is to digitize the travel and expense management process . A centralized system can help you track and process all travel expenses. The system must allow your employees to easily make reimbursement claims, make submissions, and track the process.

For example, these systems give employees the facility to click a picture of their receipts and upload it through a mobile application instantly. Plus, a digitized system also keeps a record of all the activity and data, and this database can be accessed easily.

Timely submissions of expense reports

It is advised to set reimbursement submission deadlines. Encourage your employees to submit all their claims on time so that the travel expense reimbursement process can be completed quickly.

If they delay their submission, the process will also be delayed, and ultimately employees won’t get their reimbursement amount on time. Put out reminders and be strict with your employees to complete the process on their end within the given time. 

Provide training and support to employees

Your employees will not just magically get acquainted with the process and guidelines. It is important to set up training sessions. These training sessions should educate the employees on the company’s expense policies, how to make expenses when on a trip, and how to file for reimbursements the right way.

Along with this, also put together a support team to help the employees with any kind of queries, problems, and issues while traveling or filing the claim. 

Streamline review and approval workflows

Employees have to run around to get approvals, and the finance department is behind the employees to submit their claims. This is a never-ending cycle. Instead, you should streamline the approval workflows.

Using an expense management system can automatically check the receipts and claims and flag expenses if suspicious. Along with this, these systems allow you to set a chain of approvers who will receive the summary of the claim and, with just one claim, can approve the reimbursement easily.

Conduct regular audits

Last but not least is to conduct regular audits. It is crucial to always be on of all the expenses and have a clear understanding of all the money being spent on reimbursements.

Ensure to keep a tab on all the processes and check if everything is running smoothly.

 Auditing regularly helps you to have a clear understanding of the business reimbursement spends and provides data to make any changes in the policies and process for better-streamlined expense management. 

Take control of your expenses

Benefits of streamlining travel reimbursement process using an automated system.

It is not a hidden fact that now with easy digitization and automation in the picture, manual processes can be time-consuming and extra effort-taking in comparison to automated systems.

Hence, why stay behind?

An automated travel expenses management system can help you save a lot of time and complete the same processes that took humongous efforts in just a few minutes. Along with this, the system quickly checks every detail and flags any unusual activity or expenses. 

A travel expenses management system is easy to use and gets the job done faster. Reconciliation with the accounting books becomes a piece of cake. Moreover, managers can access all expense data in real-time, and the finance team can easily work around the instantly available information.

 Ultimately, with everything available and done with just a few clicks, analysis and reporting also becomes effortless. 

Benefits for the employer

● Accurate financial records

Manual business travel expense reimbursement process is highly prone to errors. There are various mistakes the employees, the managers, and the finance team can make while submitting, checking, and reconciling travel expenses. However, an automated system takes over the whole process. Your employees just have to upload the snapshot of their expense receipts, and the rest will be done by the system automatically. The managers also just have to approve or reject the reimbursement request summary shown on their screens. 

● Enhanced expense reporting and analytics

How much time does your whole team take to compile all expense data, categorize and sort it to make a meaningful report? Probably days! Just imagine all required data being available with just a few clicks. This is what expense reporting automation does for you. It tracks, records, and collects all expense data in real-time and instantly organizes it into meaningful reports that can be accessed anytime. Using this, you can implement changes and make other decisions rather quickly. 

Master the art of expense tracking . Delve into our insightful article to learn effective strategies for tracking expenses, and gaining financial visibility.

● Help eliminate paperwork

It takes tons of paperwork and approvals to get just one business trip approved, managed, and reconciled. Employees and managers both have to go through huge lumps of documents to record everything and to ensure that the travel reimbursement process is completed with accuracy. But why not eliminate all this hassle and automate the travel expenses management process? It automatically processes the data and reports, and the managers just have to click approve or reject on their screen, making the process easier and quicker. 

● Ensure greater policy compliance

Policy compliance is the most difficult to maintain in an expense reimbursement process. However, automation solves this problem also. Any expense claim that is not in compliance with the company policies and rules will automatically be rejected. The claim will not go further for reimbursement processing if the expense amount or category or any other requirements do not match the company policy. Hence you no longer have to worry about expense fraud! 

● Time efficiency and cost savings

The ultimate motive for getting travel expenses management automation is to help your company save time and money. All those hours spent on making expense reports, filing reimbursement claims, checking all the paperwork, getting approvals, and reconciling with the accounting books can be reduced to just a few minutes with automation. Plus, all the extra costs spent on error correction and overtime for completing the process can be eliminated with automation. 

Benefits for the employees

● Increased trust and satisfaction

When your employees are reimbursed quickly, and the process is easy and convenient; they will build a sense of trust and satisfaction towards the institution. This convenience and ease can only come through the automation of the travel expenses reimbursement process. Employees just have to upload snapshots of their receipts, and the system will take care of the rest. 

● Faster reimbursement (Lowers the personal burden)

Again, the automation system will complete the reimbursement process faster than the manual processing time, so your employees will not have to worry about being short on personal finances or will not have to bear any burden of their personal funds. Faster reimbursements keep your employees happy. 

● Easy expense claims

With an expense management automation system, your employees can easily raise reimbursement claims , track the process, check the status of their claims, and finally be updated on when their reimbursement is approved and transferred. Along with this, the system will allow them to follow a clear-cut process without much hassle and documentation requirements. 

● Stress-free travel experience

Once you have proper reimbursement and travel expense management structure in place, your employees will not have to worry about reimbursements. Stress-free travel experience for your employees. A proper system assures that if the employees provide evidence for all expenses and file their claims correctly, they will be compensated no matter what. 

Key features to have in an automated reimbursement system

User-friendly interface.

What use is an automation system if it takes weeks to learn how to use it and has a complicated user interface? Instead, get automation software that is easy to use.

 Employees and managers both should be able to quickly grasp the working of it and should be able to use it to the fullest. All features must be effortlessly accessible on the dashboard so that skimming through for information doesn’t take long.

Mobile accessibility

The automation software you choose to integrate with your existing ERP system must have a mobile application version. While traveling, employees might not necessarily have their laptops or access to a PC.

So, a mobile version is convenient for uploading expense receipts instantly from anywhere, and also managers can approve expense claims easily. 

Receipt capture and storage

Another important feature necessary in an automated corporate travel expense reimbursement system is OCR technology. Optical Character Recognition technology captures essential characters from the uploaded receipt. These characters are amount, spend category, date, time, etc.

 Once captured, the system updates all that information into a centric database. This database is updated with new expense information in real-time. 

Automated calculation of reimbursements

Automation systems also offer the feature of automated calculation of reimbursements. As the system anyways does the whole reimbursement process, the end part calculator is not a difficult thing.

All expense claims are anyways recorded in the accounting sheets, everything is added, and a total can be derived just as easily.

Expense categorization

Expense management systems also provide businesses with the feature of automatic expense categorization. This means that as and when an expense is made, the system will automatically capture it and put it under the right expense category in the database and the accounting sheets.

Auto-categorization cancels out all the tedious labor put into just sorting and entering data. 

Approval workflows

Automation systems help businesses set up a smooth approval workflow. You can set multi-level approvers so that the reimbursement claim is checked 3-4 times by managers and other authorities before being passed.

This means that the expense claim request will be shown to the designated approvers of level 1, then level 2, and then level 3. Employees don’t have to go behind different people all day long to get the reports and claims approved.

Accounting system integration

One of the most important features to look for in an expense management automation system is integration with accounting software. Your expense management system must be flexible enough to integrate directly with your accounting software.

All expenses, when tracked in real-time, should also be entered into the accounting books in real-time. 

Policy compliance checks

Another must-have feature in a travel expenses reimbursement automation system is a policy compliance check. The software should not only process all the compensation claims but also should be able to flag and stop any claim that is not in compliance with the company policies and rules.

 You can enter all the required policy information in the system so that it can check the legitimacy of every expense against it. 

5 best travel reimbursement software for businesses

As an all-in-one expense management software , you can manage all business expenses with Volopay, including employee reimbursements. You can create expense categories for business travel for your own convenience.

Employees will then be able to file reimbursement claims from anywhere through the use of a mobile app in just a few clicks.

2. Zoho Expense

With Zoho Expense, you can make and manage online travel bookings. You can also manage offline travel-related needs, enabling you to make itineraries and travel profiles for smoother business travel.

 This way, tracking any expenses made during business trips will be simple. Easily pinpoint which travel expenses were made out of pocket and need to be reimbursed.

3. SAP Concur

SAP Concur offers a way to accurately track and report your business travel expenses hassle-free. Employees on business trips can snap pictures of expense receipts on the go, allowing you to keep all your travel expenses reimbursement data in one place.

 The reimbursement process can happen much faster when everything is easily accessible.

4. TravelPerk

TravelPerk is a travel management platform that helps you manage business trips and costs. You can collect all travel invoices through TravelPerk and employees won’t have to manually do expense reports.

 The platform allows you to view one invoice with all the details at the end of each trip, eliminating the need for paper travel reimbursement documents.

Fyle makes expense reporting stress-free for employees. Expense reports can be done at any time from anywhere with Fyle and will be reflected directly on the platform.

Every reimbursable expense is recorded on a centralized dashboard and can be filtered and viewed to make the travel reimbursement process go smoother.

Streamline your travel expense reimbursement process with Volopay

It is not impossible to find all the above-mentioned features in one platform. Introducing to you — Volopay! An all-in-one expenses management system created to help businesses save time and money that is normally invested in manually managing expenses and reports. 

With respect to travel expense reimbursement, Volopay gives ti customers the facility to set up a customized reimbursement process. With Volopay, you can set up multi-level approvers, get instant approval or rejection, OCR to recognize receipt characters, a mobile app for anywhere access, real-time expense tracking, and much more.

Optimize your expense management

Faqs on travel reimbursement.

For employees, reimbursements are treated are non-taxable income, and for the company itself, reimbursement expenses are tax deductible. 

An example of travel expense reimbursement is hotel reservations. The hotel your employees stay in during the business trip, the charges of that are reimbursable. 

An expense reimbursement policy is a set of rules and guidelines that are put in place to establish an expense structure and to educate the employees on how and what expenses are compensated. 

There is no period of time for reimbursements. Depending on the complexity of the company workflow, it can take anywhere between days to months. 

Travel expenses are broadly classified as reimbursable and non-reimbursable expenses.

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• Per Diem Lookup

Privately owned vehicle (POV) mileage reimbursement rates

GSA has adjusted all POV mileage reimbursement rates effective January 1, 2024.

* Airplane nautical miles (NMs) should be converted into statute miles (SMs) or regular miles when submitting a voucher using the formula (1 NM equals 1.15077945 SMs).

For calculating the mileage difference between airports, please visit the U.S. Department of Transportation's Inter-Airport Distance website.

QUESTIONS: For all travel policy questions, email [email protected] .

Have travel policy questions? Use our ' Have a Question? ' site

PER DIEM LOOK-UP

1 choose a location.

Error, The Per Diem API is not responding. Please try again later.

No results could be found for the location you've entered.

Rates for Alaska, Hawaii, U.S. Territories and Possessions are set by the Department of Defense .

Rates for foreign countries are set by the State Department .

2 Choose a date

Rates are available between 10/1/2021 and 09/30/2024.

The End Date of your trip can not occur before the Start Date.

Traveler reimbursement is based on the location of the work activities and not the accommodations, unless lodging is not available at the work activity, then the agency may authorize the rate where lodging is obtained.

Unless otherwise specified, the per diem locality is defined as "all locations within, or entirely surrounded by, the corporate limits of the key city, including independent entities located within those boundaries."

Per diem localities with county definitions shall include "all locations within, or entirely surrounded by, the corporate limits of the key city as well as the boundaries of the listed counties, including independent entities located within the boundaries of the key city and the listed counties (unless otherwise listed separately)."

When a military installation or Government - related facility(whether or not specifically named) is located partially within more than one city or county boundary, the applicable per diem rate for the entire installation or facility is the higher of the rates which apply to the cities and / or counties, even though part(s) of such activities may be located outside the defined per diem locality.

UCA will reimburse attendees up to $1200 to cover travel expenses. All expense reimbursement forms and receipts MUST be received by August 12, 2024, to receive reimbursement. Reimbursement will be processed within 30 days after the close of the event.

Please consider submitting your reimbursement request to your company. The cost savings to UCA and CUCM add up – allowing us to filter those funds into advocacy. Thanks for your consideration.

The Urgent Care Association

UCA exists to ensure the advancement and long-term success of Urgent Care.

The Urgent Care Foundation

UCF exists to enable the viability of Urgent Care.

The College of Urgent Care Medicine

CUCM exists to achieve specialty recognition for Urgent Care.

• the Clinical Consortium
• the Delegates Council
• the Strategic Advisory Group

Expense Reimbursement - UCA will reimburse travel expenses up to $1200 .

Gather ALL your receipts BEFORE you start.

Travel receipts may include airfare; travel to/from airport;  and hotel room. Mileage, if submitted rather than airfare, is reimbursed at $0.67/mile.

All expense reimbursement forms and receipts MUST be received by August 12, 2024, to receive reimbursement. Reimbursement will be processed electronically within 30 days after the close of the event.

Authorization for Direct Deposit via ACH

Direct Deposit via Automated Clearing House (ACH) is the deposit of funds to a consumer's account for payroll, employee expenses reimbursement, government benefits, tax and other refunds, and annuities and interest payments.

Urgent Care Association is referred to as UCA in this form.

• I authorize UCA to electronically credit my account (and if necessary, debit my account to correct erroneous credits).*
• I understand this authorization will remain in full force and effect until I notify UCA in writing (via email) that I wish to revoke this authorization.
• I understand that UCA requires at least one week prior notice in order to cancel this authorization.**
• I agree that ACH transactions I authorize will comply with all applicable laws.

* The National Automated Clearing House Association (NACHA) Operating Rules do not require the consumers express authorization to initiate reversing entries to correct erroneous transactions. however, Originators should consider obtaining express authorization of debits or credits to correct errors.

** Written credit authorization must provide that the receiver may revoke authorization only by notifying the Originator in the time and manner stated in the authorization. The reference to notification should be filled with a statement of the time and manner that notification must be given in order to provide the company a reasonable opportunity to act on it.

10-6: Reimbursement requests

Effective : January 15, 2024 Approved by : Van Christensen References :  Utah Code 63A-3-107 ,  Administrative Code R25-7 ,  Administrative Code R25-5 .

This policy outlines how reimbursement requests must be submitted, what documentation must be included, and who must approve the requests. This policy also states which expenses are not eligible for reimbursement.

Definitions

Agency  – Any agency, board, bureau, office, department, or other administrative subunit of state government. This definition includes the executive, legislative, and judicial branches.

Chief of staff  – The chief of staff to the governor. 

Concur  – Software used by the state to manage travel, reimbursements, and p-card transactions. 

Conference hotel  – A hotel designated by the conference sponsor or organizer as a conference hotel.

Designee  – The person who has written permission from the executive director to act on their behalf. The executive director is responsible for selecting a designee who has the knowledge, skills, and experience to make decisions in the best interest of the agency.

Executive director  – The executive leader of an agency.

FINET  – The financial management system used by the state for accounting, budget control, and reporting.

P-card  – A state-issued purchasing card used for approved business purchases. 

Reimbursement  – Money paid to compensate travelers for money spent while traveling on official business.

Reimbursement request  – The general term for requesting payment for travel expenses. In Concur, travelers add their expenses to a report. Travelers who cannot use Concur use form FI 51.

Traveler  – Any person traveling on official state business for an agency or political subdivision. This definition includes employees, non-employees, board members, elected officials, vendors, volunteers, grant recipients, and award beneficiaries. 

Travel policy  – All policies labeled  travel policy  established by the GovOps Division of Finance.

Travel request  – The general term for asking permission to travel for state business. In Concur, the state’s travel software, travelers add their expected expenses to a request. Travelers who cannot use Concur use form FI 5.

A – Reimbursement requests must be submitted in Concur

1 – Travelers must record their travel expenses in a reimbursement request in Concur.

2 – Travelers must submit reimbursement requests in Concur within 60 days of the date they paid for travel expenses.

B – Necessary documentation must be attached to reimbursement requests

1 – Travelers must attach an itemized receipt to each expense, except for meals and incidental expenses. The itemized receipt must show the following:

• the items or services
• dates the items were purchased or services incurred,
• quantities,
• cost of each item,
• total cost, and
• proof of payment.

2 – Travelers who don’t have an itemized receipt must choose the missing receipt affidavit option for that expense. A missing receipt affidavit cannot be used for lodging, airfare, or rental vehicles.

• 1 – Travelers with excessive missing receipt affidavits may lose travel and p-card privileges and be denied reimbursement.

3 – Travelers must write a business purpose for each expense in their reimbursement request. Travelers must describe why they paid for an expense and how it is related to state business.

4 – Travelers may need to attach other documentation to their reimbursement request.

• Travel itinerary a.1 – If travelers took a flight, stayed overnight in a hotel, or drove an out-of-state rental car, they must attach their travel itinerary to the reimbursement request.
• Documentation of miles b.1 – If travelers used their personal vehicle for state business, they must document their mileage. b.2 – Travelers must use the mileage calculator in Concur to report miles driven.
• Schedule of events c.1 – If travelers attended a seminar, conference, convention, training, or meeting, they must attach an agenda to their reimbursement request.
• Registration materials d.1 – If travelers attended a seminar, conference, convention, or training, they must attach registration materials to their reimbursement request. The materials must show the following information: the registration cost, dates, location, schedule, conference hotel and rates, and provided meals.

C – Expenses not eligible for reimbursement

1 – All expenses must have a valid business purpose. The state does not reimburse the following expenses:

• Alcoholic beverages,
• Pet or animal care, food, or boarding services,
• Child care or house-sitting,
• Prepaid fuel or refueling charges required by the rental company for rental cars,
• Motorized scooters,
• Commuting mileage between the traveler’s home and primary work location,
• Any expenses for or on behalf of family members, friends, relatives, acquaintances, or other travel companions.

2 – Agencies must contact the GovOps Division of Finance if they encounter unusual expenses and are unsure if the expenses are eligible for reimbursement.

D – Reimbursement requests must be approved by an appropriate authority

1 – The order for required approvals is as follows: budget officer, supervisor, and division director (or agency equivalent). Situations that require different approvers are discussed in  policy 10-4 section D .

2 – The executive director or designee must approve reimbursement requests if:

• reimbursement requests for out-of-state or international travel exceed 125% of the amount approved in the travel request; or
• reimbursement requests are not submitted within 60 days of the date the traveler paid for expenses.

E – Approvers must ensure reimbursement requests are accurate and comply with policy

1 – Approvers must ensure reimbursement requests are accurate and comply with travel policy. Approvers must do the following:

• confirm that expenses have an itemized receipt attached. Review the receipt to make sure expenses were for business purposes, applicable to travel dates, and represent actual goods and services received.
• confirm that expenses are properly coded.
• make sure the traveler attached any other necessary documentation for each expense. For example, if a traveler had personal days added to their trip, they must attach a flight comparison to the reimbursement request. Or if a traveler booked a conference hotel, they need to attach conference materials.
• ensure travelers are not reimbursed for p-card purchases or expenses on other reimbursement requests; and
• review alerts and make sure there are no error messages in the reimbursement request.

2 – If approvers find errors in the reimbursement request, they must send it back to the traveler with a note explaining what needs to be changed. For example, if a traveler did not attach a necessary document or did not use the mileage calculator, the approver must send the reimbursement request back to the traveler.

3 – If approvers find expenses that do not comply with policy, they must notify the executive director or designee in writing. For example, if a traveler upgraded to a first class flight without an approved exception,

• 1 – The approver must attach the following documentation to the reimbursement request: a copy of their communication with the executive director or designee and evidence of the executive director or designee’s decision.

F – Agencies must collect overpayments

1 – Agencies are responsible to collect payment from travelers who were overpaid when reimbursed.

G – Travelers who cannot use Concur

1 – Travelers who cannot use Concur must use form FI 51: Travel Reimbursement Request. Travelers must include the necessary documentation listed in section B.

2 – For reimbursements that are taxable, travelers must submit form FI 48: Employee Reimbursement/Earnings Request to the GovOps Division of Finance payroll team.

3 – Reimbursements must be entered and approved in FINET instead of Concur.

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