How to Manage Travel and Entertainment Expenses

Whether you’re taking a client out to dinner or attending a conference, the costs of those activities can add up quickly. Good record keeping for travel and entertainment (T&E) expenses is key in order to take advantage of any possible tax deductions for your business.

Saving receipts for all activities is just one piece of good documentation. However, this must be substantiated with what is known as the 5 Ws – who, what, when, where, and why. Along with each receipt, keep a log of:

    1. The business relationship to the taxpayer or persons involved (Who)
    2. The type or category of the expense (What)
    3. The time and place of the expense (When, Where)
    4. The business purpose of the expense (Why)

When it comes time to reimburse employees for their out-of-the-office business activities, there are two approaches you can take – per diems or a reimbursement plan.

Per Diems

A per diem is a daily allowance for work-related lodging, meals, and incidental expenses (tips/fees for staff, baggage, etc.). With a per diem, one rate is applied to lodging while another applies to meals and other expenses. With a per diem rate, the employee gets a set amount of money for their traveling expenses up front. They can spend that money however they want.

Per diems have a set rate from the IRS, which vary from city to city, generally depending on the expenses of that specific area. For example, in 2015, South Bend has a daily lodging per diem rate of $90 and a daily meals/incidental expenses rate of $56, but you could reasonably assume that a city such as New York would have a higher per diem rate for both.

It’s important to note that although a set rate has been determined, saving receipts and documenting the 5 Ws is still necessary.

Reimbursement Plan

With a reimbursement plan, employees spend their own money during a business trip or throughout the course of a month and are then reimbursed by their company for the expenses incurred during that time. Unless a pre-determined budget is agreed upon in advance, there is no set amount that employees can spend.

Once a month, or when the employee returns from their trip, they would simply submit all of their receipts eligible for reimbursement and document the 5 Ws on an expense report. Our firm uses a reimbursement plan – we have included a sample of one of our expense reports for you to use as an example.

What have you found works best for your business? Leave us a comment below! If you have questions or need help with developing your own policy, give us a call!


staff-jenn-grubbJennifer Grubb, CPA
Senior Manager
Email Me
574.289.4011, x216

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