Reimbursing employees for Travel

Working at a temporary job site can increase tax deductions.

What would normally be nondeductible personal expenses for food and lodging can become deductible business costs when a taxpayer is away from home at a temporary work location.

Business entertainment expenses and business gift expenses may be deductible, but subject to certain limits. Refer to IRS publication Travel, Entertainment, Gift, and Car Expenses, for additional information on business expenses.

You must keep records to prove the expenses you deduct.

If your employer reimbursed you or gave you an advance or allowance for your employee business expenses that is treated as paid under an accountable plan, the payment should not be shown on your Form W-2 as pay. You do not include the payment in your income, and you may not deduct any of the reimbursed amounts.

To be an accountable plan, your employer's reimbursement or allowance arrangement must include all three of the following rules:

1. You must have paid or incurred expenses that are deductible while performing services as an employee.
2. You must adequately account to your employer for these expenses within a reasonable time period and
3. You must return any excess reimbursement or allowance within a reasonable time period.

If your employer's reimbursement arrangement does not meet all three requirements, the payments you receive should be included in the wages shown on your Form W–2. You must report the payments as income, and you must complete Form 2106 and itemize your deductions to deduct your expenses.

In general, both you and your employer WANT reimbursements to be made as part of an accountable plan, since these expenses escape ANY exposure to social security, income tax, or workers compensation insurance. As an employee, you may be able to deduct some of these expenses on form 2106, but these expenses would have to exceed 2% of your adjusted gross income and you would have to be able to itemize your tax deductions.

Steven A. Feinberg - www.AppletreeBusiness.com - Get Appletree Blog via Email!