Travel Expenses

Updated on January 4, 2024
Article byNanditha Saravanakumar
Edited byAlfina
Reviewed byDheeraj Vaidya, CFA, FRM

Travel Expenses Definition 

Travel expenses refer to the total amount spent by an employee or a group of employees while traveling to another city, state, or country for a professional purpose. According to the IRS, the expenses are tax deductible only if the assignment lasts for less than a year.

Travel expenses

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Travel expenses include food, transport, accommodation, commute, and expenses for other services. The employee is responsible for maintaining receipts and other documents that reveal a particular expense they claim. After examination, the employer will reimburse the employee. Hence, they should be vigilant while requesting reimbursement for travel expenses.

Key Takeaways

  • Business travel expenses denote an employee’s spending on transportation, food, lodging, and other services like laundry, business calls, etc.
  • The internal revenue service (IRS) clearly outlines which expenses, under what circumstances, will be eligible for a tax deduction.
  • It is important that the employee can only ask for the reimbursement of their business-related expenses. Therefore, the company will not bear any amount spent on luxuries, extravaganza, personal use, or unnecessarily spent. 
  • The employees should have proper evidence to back their claims in case of a legal necessity.

Travel Expenses Explained 

Travel expense reimbursement might seem less significant, but it has serious legal implications and should be well understood. In a professional context, there might be situations where employees will have to travel as part of a deal, or signing a contract, or attend a conference. Here, the employees represent the company and travel as part of their profession.

When employees incur work-related travel expenses, it is the responsibility of the employer to reimburse them. For this, the employee should maintain all receipts that correspond to any business-related expense. So this implies that the employee should exercise due care while spending. In some cases, employees will spend unnecessarily or purchase luxury items, hoping the company will pay them back. But the companies are legally obliged to pay only for professional travel expenses.

Travel Expenses And IRS

Let’s understand how the internal revenue service (IRS) looks at business travel expenses. According to the IRS, these expenses occur when an employee works away from his tax home and for a work day longer than a normal work day (at tax home). Here, tax home refers to the region where a person works. Consider a simple example.

Smith works at his office in New York for 8 hours a day. New York is his tax home. He has to travel to Chicago as part of a business trip and stays there for a week. Smith incurs a total work-related expense of $1500. This amount can be reimbursed.

However, if he visited his friend while on the trip, any amount incurred to travel and reach his friend’s destination and back to the hotel (or his place of stay) would have to be borne by him. 

Now, consider another scenario. Suppose Smith’s family stayed in Kentucky, and he visited them every month. The expenses that occur in doing so are not related to business. Hence, he will not receive reimbursement. 

Also, IRS mandates that the period of the business trip or assignment should be less than a year if the company wants to claim a tax deduction on the expenses.

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List Of Travel Expenses

The IRS lays down a list of tax-deductible travel expenses for any company:

  1. Transportation fare (by airplane, car, train, etc.) between the employee’s tax home and the destination, including return.
  2. Commute expenses from or to the airport, hotel, or work location. The fuel cost, parking, and toll fee reimbursement can be claimed if the employee uses their personal vehicle.
  3. Shipping charges (baggage, etc.)
  4. Lodging/accommodation and food expenses.
  5. Dry cleaning and laundry services
  6. Internet or cellular data charges
  7. Tips paid for services.
  8. Any other expenses related to the work.

Examples

Let’s discuss some examples to understand travel expense reimbursement.

Example #1

Haley works for company X, based in California. She has to attend a 2-day conference in Denver as part of her work. Following is the list of her expenses:

Flight fare = $300

Hotel expenses = $500

Food = $50

Commute (Hotel to work to the hotel) = $200

A visit to Rocky Mountain National Park with friends = $150

Total travel expenses = Flight fare + hotel expense + food + commute

= $ 1050

Haley’s visit to the national park is her personal expense and will not be considered here.

Example #2

Following the abortion ban in the United States, many multinational companies in the U.S. have decided to undertake their employees’ travel expenses when they travel out of the state or country to obtain a safe and legal abortion. The last week of June 2022 saw many companies coming forward and supporting their employees in this regard. Goldman Sachs, Meta, JPMorgan, Walt Disney Co., Microsoft, Amazon, Apple, Tesla, and Bank of America are some big players who have implemented the addition to employees’ healthcare policies.

Frequently Asked Questions (FAQs)

1. Is travel expenses tax deductible?

Yes. However, the tax-deductible travel expenses should be strictly related to one’s profession, provided that the work assignment or the business trip lasts for less than a year. Also, the employee should be able to support their claims with proper evidence.

2. How to ask for reimbursement of travel expenses?

Any employee traveling on behalf of their company can ask for reimbursement of their expenses, and the firm is legally mandated to compensate them. However, the employees should maintain all the receipts which back a particular claim. Only if the employer is convinced that the employee has sincerely presented the information will they reimburse the employee.

3. How to calculate travel expenses?

Travel expenses include the total amount an employee spends for trips or visits undertaken in the company’s name. It includes transportation, lodging, food, commute, and other services like laundry, data, etc. Any other expense incurred for personal use will not be considered work-related and should not be accounted for.

This article has been a guide to Travel Expenses and its definition. Here, we explain it with a list of tax-deductible & business expenses, reimbursement, & examples. You can learn more about it from the following articles –

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