The idea of expense management when you’re a business traveler can get complicated, and the same goes for employers who are always working on ways to stay on top of expenses and maintain a sense of control and visibility.
Luckily a lot of companies are making it easier on their employees and their finance teams through the implementation of expense management software with features such as mobile apps to manage receipts and expenses on the go, but there is still another issue business travelers face. That issue is how to deal with taxes and deductions.
The following are some things to know for business travelers, and understanding tax deductions and issues from the standpoint of the employee can also help employers better meet their needs and provide them with the tools and resources they need.
What is Classified as Business Travel?
First of all, travelers and their employees should know that the term business travel is a specific one, and the IRS outlines it.
What does the IRS mean by business travel, at least from their own perspective?
It’s a reference to travel away from what’s considered an employee’s tax home that’s “substantially” longer than a day’s work. Business travel as far as the IRS is concerned also requires that the individual is sleeping or resting while they’re away for work and that sleep or rest can’t be done at home.
Employers and employees should differentiate between a home and what a tax home may be. According to the IRS, your tax home is where your primary place of business is, but this doesn’t mean it’s where your house is.
Types of Travel
There are different IRS guidelines on deductions depending on the type of travel.
For example, if you’re planning on going to a convention, you may need to show that it is directly related to your work, and if you’re going to an event aboard a cruise, it can be tough to prove that this should be a deduction.
For some finance teams in big companies, they may already know the IRS guidelines so they can send employees on trips that are going to be tax deductible for the organization, but it can be a bit trickier if you’re a business traveler who’s not being reimbursed for something, but you’re looking for deductions.
Are Expense Reimbursements Income?
Another question a lot of frequent business travelers have is whether or not expense reimbursements are counted as income.
Whether you’re an employee or an independent contractor, you do have the opportunity to deduct certain business expenses, but if you’re reimbursed, you can no longer do that. However, are reimbursements taxable income?
Generally they aren’t, as long as you can prove that you were reimbursed for a legitimate business expense. When you’re reimbursed, you don’t need to claim, but an employer can claim it as a deduction on their own return.
Finally, this again relates to expense management software and its importance in the modern workplace, not just for employers but also for employees.
It makes it easier to keep track of expenses and reimbursements to make sure taxes are filed correctly. If an employee doesn’t have the necessary proof the reimbursement was a business expense, the IRS may ultimately add it to the employees’ taxable income.