T & E Deductions






Business Travel, Meals, and Entertainment

A Deduction Checklist

Type of Expense Deductible Percentage

Travel                                                                                              100%    50%    0%

Local business travel…………………………………………………………….X
Out of town business travel and lodging…………….…….………..…………X
Travel as a form of education………………………………………………………..………….X
Investment seminar fees, travel, and meal expenses……….…..……..….…….………….X

Meals 

Business meals for yourself while away from home overnight on business……….X
Meal with employee, colleague, business contact, customer,
or client with business discussed before, during, or after……….……………………X
Meal with employee, colleague, business contact, customer,
or client with no business discussion……………………………..……….………..………….X
Lavish and extravagant portion of a business meal…………………….…………………….X
“Goodwill” or “quiet” business meal with no business discussion………….………………..X

Entertainment

Entertaining a client or customer, with significant business discussion …….……..X
Entertaining a client or customer, with no business discussion…………………………….X
Tickets to sporting or cultural event connected with significant
business discussion…………………………………………….…………………..…….X
Business gifts of no more than $25 per recipient……….…………………….X
Entertaining employees at a company picnic, Christmas party, etc…….….X
Samples and promotional items provided to general public for
business purposes………………………………………………..….…………..X

Reporting Business Travel and Entertainment

Generally, business travel remains fully deductible, but business meals and entertainment are only 50% deductible. Special rules allow workers under DOT hours of service regulations to deduct 80% for 2016.

It is the employer’s reimbursement policy that determines whether it’s the employee or the employer who must reduce meals and entertainment expenses before taking a deduction on the tax return.

If an employee is not reimbursed by his employer for business expenses, the employee must adjust his meal and entertainment expenses for the nondeductible portion. These expenses may be deducted on his tax return only if he itemizes and then only to the extent such expenses along with other miscellaneous itemized deductions exceed 2% of his  adjusted gross income. In this situation the employer gets no deduction.

If the employee is reimbursed by his employer under an “accountable plan,” the employee does not report the reimbursements as income nor does he report the expenses as deductions. The employer in this case deducts reimbursements paid to the employee
after making a reduction for 50% of meals and entertainment.

If the employee is reimbursed by his employer under a “non-accountable plan,” the reimbursements are includible in the employee’s gross income, are reported as wages on his Form W-2, and are subject to withholding and other payroll taxes. Employee business expenses paid under a non-accountable plan are deductible (by the employee) only as a miscellaneous itemized deduction subject to the 2% of adjusted gross income floor (and subject to the limitations on total itemized deductions for higher income tax-payers). Meal and entertainment expenses are subject to the 50% limitation.

A non-accountable plan is any plan that fails to meet the requirements of an accountable plan.

Deductible Travel Expenses

  • Travel by air, bus, taxi, train, or automobile
  • Lodging expenses
  • Baggage charges
  • Cleaning and laundry charges
  • Cost of temporary help during business travel (i.e. secretarial help or telephone answering service)
  • Reasonable tips
  • Expense of transporting sample cases or display materials
  • Telephone calls

Deductible Entertainment Expenses

  • Transportation to or from an entertainment event
  • Tickets for entertainment, such as a sporting event, theater, or concert
  • Nightclub cover charges
  • Catering charges and room rental for entertainment activity
  • Entertaining business clients at home

Deductible Meal Expenses

  • Food, beverages, taxes, and tips
  • Meals on business trips
  • Meals furnished to employees on the employer’s premises
  • Transportation to or from restaurant

Business Gifts

  • Limited to $25 per recipient

Substantiation Requirements

Business travel, meals, and entertainment expenses must be substantiated by adequate records. An account book, diary, log, expense record, or the like should be kept. The expense and the business purpose must be recorded at or near the time of the activity. Information that must be recorded varies with the kind of expenditure but generally includes the following:

  • Amount spent
  • Date, time, and place of expenditure
  • Business purpose of activity
  • Name and business association of individuals involved

In addition, a receipt or other substantiation is required for all lodging.

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