Managing Business Travel Costs
Business travel is essential to success in many industries. But it's also essential that you manage travel-related expenses to be sure they don't eat away at your bottom line. Here are some tips to help you accomplish that.
Establish travel policies and budgets in advance
If you haven't already done so, set guidelines to make sure your employees understand before beginning any company-related trip which expenses they need to record (and how) and how much they're allowed to spend.
A simple first step is to require that you (or a designated department manager) sign off on predetermined expenses such as airfare, hotels and rental cars. You should also set limits on allowable expenses for meals, entertainment and so on. Employees need to know that they can't drop $2,000 on a single dinner and drinks and expect to be reimbursed. Some of the apps mentioned below include features and workflows to streamline and automate budgeting, approvals, reporting and other controls.
Setting firm limits on travel expenses helps establish a company culture of protecting the bottom line. This is particularly important at smaller companies where employees make their own travel arrangements. But even at larger firms, where trips are arranged through a dedicated travel planner, it's wise to encourage employees to spend the company's money as carefully as they would their own.
Make sure employees document tax-deductible expenses
One way businesses can minimize their income tax bill is to claim every allowable deduction. Mileage, when employees travel by car, is the most common deduction — as well as the easiest to document. Gone are the days when you had to remember to write down your odometer reading before starting a trip. Smartphone apps like MileIQ allow users to automatically track mileage and make it easy to include precise deductions in all expense reports with clear data for audit support. It's no wonder this app is a favorite among solopreneur road warriors.
It's important to be aware of a possible tripwire, however, as the IRS can be very picky about certain deductions. You probably know, for example, that the commute from home to the workplace and back is not deductible. But you might not know that those commuter miles must be subtracted from deductible business miles when you or an employee begins a business trip from home instead of driving to work first. In other words, if your daily round-trip commute from home to the office is normally 10 miles and one day you drive 300-miles round trip to a business meeting, starting from home instead of work, your allowable deduction for that business trip is only 290 miles, not the full 300.
It's also important to remember that the IRS periodically updates allowable mileage deductions, so be sure to stay current. (Note: If you're self-employed, you can choose to claim the annual maintenance costs of your personal vehicle in lieu of mileage deductions, but this approach is impractical for reimbursing other employees.)
Other deductions can be more complicated
Lodging, airfare, taxi, ridesharing, and public transit costs are the most straightforward travel-expense deductions.
Deductions for meals and entertainment are more complicated. Under 2023 rules, you can deduct 50% of the cost of meals eaten during business travel or use the IRS's standard meal allowance, a per diem that varies by location. It's important to note that you can't cherry-pick — you have to use either the 50% deduction or the standard meal allowance and stick with that choice for the entire year. So consider it carefully.
Also, you can deduct entertainment expenses only when the entertainment is "promotional" in nature, such as sponsoring an event. On the other hand, if you buy a meal for a client, you're entitled to claim the full 50% deduction for the client's meal as well as your own. That's not considered entertainment per se.
Reimbursements add up
Technically, the IRS only requires taxpayers to keep receipts for expenses over $50. But it is possible for the IRS to disallow the tax deductibility of certain expenses if you don’t have evidence to substantiate the business nature of each amount that you reimburse your employees for their out-of-pocket travel costs. So as long as you document each valid business expense by keeping receipts, credit card statements, etc., you should be able to claim the full amount.
And if you’re in the business of billing your customers to reimburse your company for travel or any other expenses, often those customers will require copies of your receipts for similar reasons. If you can’t produce those receipts, you may not be able to collect the reimbursement.
Yes, there’s an app for that!
Depending on the size of your company and the amount of traveling you and your employees do, you might benefit from expense management software such as Expensify, Nexonia, Concur (and the list goes on and on …)
Options like Divvy, Brex and Ramp also come with digital banking and corporate credit card solutions all built into the same platform. These and similar solutions can embed company policies and automate expense reports, keeping you from having to make judgment calls. Most of them integrate directly with your accounting software to eliminate duplicate work recording the expenses on your books. Some have mileage-tracking functionality built right in. And some are using AI to determine spending patterns and surface other insights that can reveal money-saving opportunities for your business.
The bottom line is the bottom line
Unless you establish clear, consistent procedures, travel expenses can easily get out of hand and threaten your company's financial stability — especially if you're a startup. That's why it's so important to set the right tone. Managing expenses not only helps contain costs, but also is a good opportunity to emphasize that you and your employees are all in this together. Ask your trusted accounting services partner for their recommendations that best fit your company’s specific needs to protect your bottom line.
