As many small businesses look to account for every single dollar that leaves the office, monitoring your employees' travel is especially important in these tough economic times.
Not only is this important from a monthly revenue stand point so that your small business does not lose significant amounts of money, but it also proves important when doing your company taxes in the spring.
For those small businesses that reimburse all or a portion of their employees' travel and entertainment expenses, keep in mind that reimbursements through an account plan are not subject to payroll or income-tax withholding, while reimbursements paid via non-accountable plans are recorded as pay.
The Bottom Line
As you record and pay out employee travel expenses, note that the IRS will consider an account plan as long as the reimbursement plan contains proof that:
- Reimbursed expenses provide a clear business tie -- they needed to be incurred by your employees while performing duties on your behalf;
- Employees need to adequately account for their expenses within a reasonable amount of time, and include proof of travel, mileage, and other business expenses, along with a statement of expense or likewise record whereby expenses are entered. Your employee needs to provide you the same type of records and evidence that they would be asked to provide if the IRS questioned an employee business cost deduction on the return for an employee whose employer doesn't provide accountable plans;
- Employees are required to give back any additional payments (if a cash advance was authorized, this is a payment exceeding the costs accounted for by the employee) within a reasonable period of time.
What Can Employees Report?
When your employees are on the go meeting with clients, attending conferences and networking events, researching products etc. for your business, they are allowed to track expenses and turn in reports for reimbursement.
In many instances, employees will either use a company-owned credit card or their own, then turn in the receipts for reimbursement.
Among the items that employers can deduct from their employees' travels are:
- Transportation costs;
- Hotel accommodations;
- Baggage and shipping costs when needed for a work site;
- Entertainment expenses.
How to Track Expenses
In order for employers to record employee travel expenses, there are several methods to choose from.
While some employers like the old-fashioned way of paper documentation, others prefer using software to record the information. With the right software, employers can review employee expenses daily or weekly, along with summarizing reports for the entire year.
There are also online reporting services that easily monitor or track all employee costs. Once an employee books their travels online, the data will be gathered automatically. Employers can also receive reports from both automated payment systems and e-receipts.
No matter how your company goes about recording employee expenses, make it your business to be sure the information is accurate and continuously updated.
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