In these post-COVID days, business travel is down, but it still happens, and is happening more often again. I get asked how to substantiate expenses taken for business travel.
Simple answer, it depends. There! Don’t you love smarty-pants CPAs who give vague answers?
Well, it really does depend. If you own your business and it is taxed as a self-employed business, you need to keep receipts and keep a simple diary of your travel… dates, places, work done, for whom, etc. Make sure to keep track of all meals separately. If you are an employee, you can’t deduct employee business expenses on your personal return until 2025 (if Congress doesn’t do anything). Your only option is to turn in an expense reimbursement request to your employer.
If you own the business and it is taxed as a Partnership, Sub-S, or C-Corporation, you should turn in an expense reimbursement request too. Better yet, have your business pay all travel expenses directly.
In all cases, travel meals are only 50% deductible for your employer/business. That goes all the way back to Jimmy Carter, who was jealous of business folks getting to deduct meals as a business expense. So do a good job of keeping track of all meal expenses separately.
There are some simple concepts about what a legitimate business receipt is. Credit card statements and canceled checks are no good. That just proves that you paid the bill, not what it was, etc. A real receipt needs to identify the name of the vendor, the location, the date, and separate charges for various elements of the service. (Example, a hotel receipt should break out lodging, meals and telephone charges.)
The IRS has something called the “$75 Rule” If the travel expense is under $75, the IRS will not require a receipt, just proof that you paid it. (Your log helps, credit card statement, canceled check, etc.) I think you should still keep the receipt, even if the amount is under $75. If anything, at least take a picture of it and store it digitally. The more evidence you can provide, the easier it is to get an IRS agent to be cooperative and allow deductions, give you some benefit of the doubt, etc.
Once again, the simplest and easiest way to substantiate travel expenses is to use a company credit card, turn in all the receipts to the company bookkeeper as well as a copy of your travel log. Then you are off the hook personally to substantiate anything if you are ever audited by the IRS. Your employer/business should follow basic bookkeeping standards to document all business expenditures, including travel, so if your business or employer is ever audited by the IRS, there shouldn’t be any problem.
Have you heard? Ecclesiastes 7:23a says, “All this I have proved in wisdom…”
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 775-882-4459. On the web at BullisAndCo.com. Also on Facebook.