Did you know that the average three-day domestic trip costs between $990-$1,293? That's a lot of money and can add up quickly if you're not careful. In this article, we're going to look at some of the most common travel expenses and how to save money on them. We'll also discuss some tax deductions that may be available to you. So let's get started!
What counts as a travel expense?
Travel expenses can add up quickly, so it's important to be aware of what does and does not count as business-related travel expenses.
So, what exactly is a business-related travel expense? The IRS defines it as "an expense incurred while away from home on business." This includes things like travel to and from meetings, conferences, and business-related events. It can also include expenses related to lodging, meals, and transportation.
Costs that occur while you're traveling away from home for business purposes, such as airfare or mileage, hotel expenses, and food, can all be considered business-related travel expenses. However, personal expenses, such as new shoes or clothing, do not count as business-related travel expenses, even if you purchase them while traveling. Keep this in mind when budgeting for your next business trip to make sure you include all relevant expenses.
Types of Travel Expenses
There are several different types of travel expenses, and it's important to understand what each one is before you start planning your trip. This way, you can include all relevant costs in your budget.
Accommodations and Lodging
One of the most common travel expenses is accommodations and lodging. This can include anything from a hotel room to an Airbnb rental. If you need to pay for overnight accommodations on a work trip, whether that's a hotel or other type of lodging, it counts as a travel expense. Of course, your lodging costs have to be within reason, so don't expect to be able to deduct a luxurious resort.
Another common travel expense is transportation. This includes things like airfare, train tickets, taxis, and rental cars. However, it's important that depending on your mode of transportation, the things you can deduct as travel expenses may vary. For example, if you're renting a car, you can deduct the cost of gas as a travel expense, or if you're using your vehicle, you can deduct your mileage at the standard mileage rate. For 2022, that rate is 62.5 cents per mile.
Airfare Is also considered a travel expense. However, if you pay for your flight with frequent flier miles or other rewards points, or if a client provides your ticket, you cannot write off airfare as a travel expense.
Food and Meals
One of the common questions people have about travel expenses is whether or not they can deduct food and meals. And the answer is, it depends. If you're on a business trip that lasts longer than a day, you can deduct 50 percent of the cost of your meals as a travel expense. However, if your trip is less than 24 hours, you can't deduct any of your meal expenses.
Miscellaneous Travel Expenses
There are also a few other miscellaneous travel expenses that you may incur while on a business trip. These can include things like laundry, tips, business-related communication, and shipping and handling of luggage or work-related materials. As with food and meals, these expenses can only be deducted if your trip lasts longer than a day.
Travel Expenses You Can't Write Off
There are many different types of travel expenses that can be written off on your taxes, but there are also some that you cannot. It's important to be aware of both so that you can accurately calculate your tax bill. Here are examples of travel expenses you CAN NOT deduct.
One type of travel expense that you can not deduct is entertainment. This includes things like tickets to a show or a ball game, golf fees, and other recreational activities. Even if you're entertaining a potential client or business associate, you can not deduct the cost as a business expense.
Traveling with family and friends
If you're traveling with family or friends, the IRS doesn't allow any of their travel expenses to be deducted. However, you might be able to deduct some expenses if you can prove that the trip was for business purposes and that your family members or friends were acting as employees or contractors.
Lavish and extravagant expenses
The IRS also does not allow any extravagant expenses to be deducted as travel expenses. This includes things like first-class airfare, luxury hotels, or expensive meals. If you're not sure whether or not an expense is considered lavish or extravagant, the IRS says that it's "an expense isn't considered lavish or extravagant if it's reasonable based on facts or circumstances."
Travel that is compensated
If you're compensated for your travel, whether that's through reimbursement or a per diem, you can not deduct those expenses as business travel expenses. This includes things like airfare, lodging, and meals. The only exception to this rule is if you're an employee of a church or a qualified non-profit organization and you're traveling on behalf of the organization.
Last but not least, you can not deduct any expenses for personal vacations. Even if you do some work while you're on vacation, like checking your email or attending a business meeting, you can not deduct any of those expenses.
How to manage the travel expenses for your business
Now that you know what types of travel expenses can be deducted, it's time to learn how to manage them.
Step 1: Decide the payment method
The first step is to decide how the travel expenses will be paid. You can either ask the employee to pay upfront and then be reimbursed, or you can pay the expenses directly from a company bank account or company credit card.
For many businesses, the simplest way to handle expenses is to ask employees to pay for them out of their own pockets and then submit expense claims for reimbursement. However, this can be a time-consuming process for both administrators and staff because expense reports need to be filled out and submitted, and then the claims need to be reviewed and processed.
However, with Ontheclock Employee App, the employees can submit their receipts electronically, and administrators approve the claims quickly. This saves everyone valuable time in managing this process!
Step 2: Set out a clear process for expense submission
The next step is to set out a straightforward process for employees to follow when submitting expenses. This will help to ensure that all the necessary information is included and will make it easier for you to process the claims.
To do this, you can create an expense policy that outlines what types of expenses are eligible for reimbursement and how employees should go about submitting their claims. For example, you might require employees to submit original receipts or to submit their claims within a specific timeframe.
Step 3: Communicate the expense policy
Travel expenses can be a minefield for companies, and many struggle to strike the right balance between keeping costs down and making sure employees are comfortable on business trips. It's well known that many companies have strict rules around expenses and that employees often try to find ways to get around them. This can leave the business in a difficult situation, as they may either have to pay the bill or leave the employee out of pocket. The best way to avoid this is to make sure that you have a clear and concise policy in place and that all employees are familiar with it. By doing so, you can minimize the risk of expenses spiraling out of control and ensure that everyone is happy with the arrangements.
Some ways to ensure that employees know and understand the expense policy are to:
- Send out the policy in a company-wide email every quarter
- Talk about it at all-hands meetings
- Post it on the company intranet
- Provide training on the policy when new employees join the company
How to calculate and track business travel expenses
When it comes to business travel, Admins and those in expense management are always looking for ways to make the process more efficient and cost-effective. Fortunately, there are a few simple steps that can make a big difference when it comes time to report on quarterly or yearly travel spending.
Keep track of all travel expenses
The first step is to make sure that all travel expenses are being tracked. This can be done using a variety of methods, such as expense reports, credit card statements, or receipts.
Classify expenses by type
Once all of the expenses have been collected, they can then be classified by type. This will make it easier to see where the majority of the spending is taking place and will help to identify any areas where costs could be reduced.
Calculate the total cost of travel
The next step is to calculate the total cost of travel. This can be done by adding up all of the expenses for each trip or by using a software program that will automatically calculate the total cost based on the information that is entered.
Track spending over time
Once the total cost of travel has been calculated, it is then possible to track spending over time. This can be done by creating a spreadsheet or using software that will allow you to track spending on a monthly or quarterly basis.
Compare spending to budget
The final step is to compare the total travel spending to the budget that was set at the beginning of the year. This will help to identify any areas where spending is exceeding the budget and will allow for corrective action to be taken.
By following these steps, Admins and those in expense management will be able to track and report on business travel expenses more effectively. This will ultimately lead to a better understanding of where the company's money is being spent and will help to identify areas where costs can be reduced.
How to reduce travel expenses for small businesses
- Use public transportation
When possible, use public transportation instead of renting a car. This can be a great way to save money, as well as avoiding the hassle of dealing with parking and traffic.
- Book in advance
Another way to save money on business travel is to book your flights and hotel rooms in advance. This will allow you to take advantage of early-bird discounts and will ensure that you get the best possible rates.
- Stay in budget hotels
There is no need to stay in a luxury hotel when traveling for business. There are many budget-friendly options that will still provide a comfortable place to stay.
- Save on entertainment expenses
When it comes to entertainment, there are many free or low-cost options available. Instead of going to a fancy restaurant or bar, consider going for a walk or exploring the local area.
By taking a few simple steps, it is possible to save money on business travel without compromising the quality of the trip. By using public transportation, booking in advance, and staying in budget hotels, small businesses can save money on travel expenses. Additionally, bringing your own food and saving on entertainment expenses can help to further reduce the cost of business travel. Finally, don't forget to recover the tax on your business travel expenses!