As a business owner, there are a lot of questions that come up. Borshoff Consulting is here to help you in your journey through small business ownership.
Generally not. Usually, you can only deduct costs of meals when you’re away from home overnight. Even so, the deduction is allowed only to the extent of 50 percent of the cost of meals and related tips. Also, because business-related entertainment expenses were eliminated under tax reform, starting in 2018, the deduction for meals at entertainment events is deductible (at 50%) only when costs for meals are itemized separately from entertainment costs.
Under tax reform, miscellaneous itemized deductions subject to the 2-percent floor were eliminated for tax years 2018-2025. However, prior to tax reform (i.e., for tax years prior to 2018), the following applied:
It depends. If you give your employer a detailed expense accounting, return any excess reimbursement, and meet other requirements, you don’t have to report the reimbursement and you don’t deduct the expenses. This means that any deduction limits are imposed on your boss, not you, and the 2-percent limit on miscellaneous itemized deductions won’t affect your travel, entertainment and meals costs.
Prior to tax reform (i.e., for tax years before 2018), the deduction for business entertainment and business meals could not exceed 50 percent of the cost. There are no dollar limits. Expenses must be “ordinary and necessary” (meaning appropriate and helpful) and not “lavish or extravagant,” but this doesn’t bar deluxe accommodations, travel or meals. Additionally, there were additional special limitations on skyboxes and luxury water travel.
Starting in 2018 and continuing through tax year 2025, no deduction is allowed for business entertainment. Tax reform also eliminated deductions for expenses relating to sporting events such as those for skybox expenses (previously 50%), tickets to sporting events (previously 50%), and transportation to and from sporting events (previously 50%).
Yes. Living expenses at the temporary work site are away from home travel expenses. An assignment is temporary if it’s expected to last no more than a year. If it’s expected to last more than a year, the new area is your tax home, so you can’t deduct expenses there as away from home travel.
A wide range of expenses can be deducted while traveling away from home.
Here are the main ones:
Transportation fares, or actual costs (or a standard per mile rate) of using your own vehicle. Also, transportation costs of getting around in the work area-to and from hotels, restaurants, offices, terminals, etc.
Lodging and meals (subject to the 50 percent limit on meals)
Phone, fax, laundry, baggage handling
- Tips related to the above
The following travel expenses cannot be deducted:
Costs of commuting between your residence and a work site, but it’s a deductible business trip if your residence is your business headquarters.
Travel as education
- Job hunting in a new field or looking for a new business site
Prior to 2018 and the passage of the TCJA, the following generally applied:
- There should be a business discussion before, during, and after the meals and entertainment.
- The deduction for entertainment and meals is limited to 50 percent of the cost.
- There were further limitations for club dues, entertainment facilities, and skyboxes.
- Spouses of business associates and your own spouse could be included in the entertainment in settings where spouse attendance is customary.
After tax reform, and starting in 2018, the rules changed and the entertainment expense deduction was eliminated entirely with the exception of certain activities such as office holiday parties, which remain 100% deductible. For example, the deduction for business entertainment expenses is eliminated but meals remain deductible at 50%. In addition, the following now applies:
Entertainment-related Meals. Prior to tax reform expenses for meals purchased during entertainment activities such as meals included at a sporting event were deductible at 50%. Starting in 2018; however, the deduction is eliminated unless the costs of meals are invoiced separately.
Sporting Events. Tax reform eliminated all deductions relating to sporting events including deductions for sky box expenses (previously 50%), tickets to sporting events (previously 50%), tickets to qualified charitable events (previously 100%), and transportation to and from sporting events (previously 50%).
Club Memberships. While there was never a deduction for club dues, business owners were able to take a 50% deduction for expenses incurred at a business, recreational, or social club as long as it was related to their trade or business. Under tax reform, however, that deduction has been eliminated.
If you’re an employee who is reimbursed for expenses you’ll need to file an expense report for your employer, which is a written accounting of your expense while on travel. If you received a cash advance, you’ll also need to return to the employer any amounts in excess of your expenses.
Some per diem arrangements and mileage allowances called “accountable plans” take the place of detailed accounting to the employer, if time, place and business purpose are established.
Caution: For tax years 2018 through 2025, miscellaneous itemized deductions (Form 1040, Schedule A) have been eliminated due to tax reform (Tax Cuts and Jobs Act of 2017). Prior to tax reform (i.e., tax years prior to 2018), the following held true:
Where expenses aren’t fully reimbursed by your employer or excess reimbursements aren’t returned, detailed substantiation to IRS is required and, if you’re an employee, your deductions are subject to the 2-percent floor on miscellaneous itemized deductions. In addition, your expense records should be “contemporaneous,” that is, recorded close to the time expenses are incurred.