Regarding reimbursement for expenses, you should have a good idea of how the specific IRS rules work. These include travel, meals, gifts, and per diem expenses. You want to know these items so you can claim them when you file your taxes.
Per Diem
There are specific IRS rules for reimbursement that you need to be aware of. These rules apply to both the federal government and the state and local governments. You will need to comply with the guidelines and follow the substantiation requirements. If you have questions or need help, contact an accountant.
When calculating per diems, you will need to use the appropriate rate. These rates vary depending on where you are going. For example, if you are traveling in New York City, your per diem will be higher than if you were traveling in a small town in Georgia.
In addition to the per diem rate, you will need to pay attention to the other expenses associated with your trip. This can include incidental expenses such as dry cleaning or laundry, ground transportation, phone usage, etc.
To be able to deduct expenses, you will need to submit an expense report. The report should include the date and place of the trip, the business purpose of the journey, and the amount of the expense.
Business-related Expenses
The IRS has a set of rules on reimbursements for business-related expenses. They are designed to protect both employers and employees.
These reimbursements are exempt from FICA and Medicare taxes, and the employee is not taxed on the amount. However, if the refund is not documented correctly, it will be taxable to the employee.
Business-related expenses can include mileage, travel, or work-related supplies. The employer may reimburse these expenses if they fall under an accountable plan. A connection between the employee’s work and the cost must be evident to be eligible for reimbursement.
It is essential to have a plan in place for this type of reimbursement. Employees must be able to substantiate their expenses within 60 days. Also, a daily diary of expenditures is essential.
Aside from mileage, other expenses that can be reimbursable include telephone calls and internet access. The mileage reimbursement form must be for a business-related purpose and not for personal use.
Another enticing benefit of reimbursements for business-related expenses is that employees are not subject to income tax on the payments. This can help reduce AGI and increase eligibility for certain tax credits.
Travel Expenses
The IRS has several special rules for substantiating and proving travel expenses. Fortunately, these rules are simple. It’s up to you to verify your claim, though.
First, the IRS requires you to show a believable policy. Your company financial policy should outline how to travel reimbursements will be accounted for. This can be tricky, especially for small businesses. Having a clear policy can help you define the scope and responsibilities of your company’s travel administrator.
Second, you must keep detailed records. In most cases, this means a daily diary of expenditures. This must be maintained in sufficient detail to identify and track expenses.
Third, the IRS requires you to prove the cost of your expense. In particular, you should substantiate the high-low rate for your mileage. You can also verify actual costs, but it isn’t required.
Finally, it would help if you looked into the per diem rules. They are a streamlined way to substantiate business travel expenses, but only if your employees follow the rules. These rules require you to verify your employees’ reimbursements within 60 days.
Meals
Several specific IRS rules of thumb about the reimbursement of a meal. The first is the standard meal allowance, the federal meals, and the incidental expense per diem rate. For a complete list, check out the GSA website.
The second is the daily per diem rate, which allows you to spend discretionary cash on your meals. If you don’t travel for business often, you might be surprised to find out how much you can get away with. If you are an independent contractor, you aren’t subject to the limits of a company-sponsored program.
You can also look to the GSA for the federal meals and incidental expense per diem rates, but you can’t count on their nifty little list. You should consult a tax professional to ensure your meal-related costs don’t fall foul of IRS tax laws.
To be clear, the most important rule of thumb relates to the actual meal cost, not the reimbursement. It is in that realm where an employer is most at risk.
Gifts
The Internal Revenue Service has specific rules for reimbursement for gifts. These rules can differ depending on the employer and the type of gift given. Generally, gifts by employers are treated as supplemental wages. This means that the value of the gift must be included on the employee’s W-2 form. However, if the gift is not a cash payment, it may not be included in the employee’s wages.
Gifts of tangible personal property in the United States are subject to gift tax rules. The taxpayer must pay taxes on the estate’s value if a contribution exceeds the annual gift tax exclusion amount. Even if the facility is for a non-resident alien, it is still subject to the rules.
Employees are not allowed to receive gifts that exceed $25. This limit is a long-standing rule of thumb. But there are exceptions.
Employers can provide certain types of cash payments to employees in disaster areas without tax consequences. These payments must be a part of a meaningful presentation. Qualified disasters include hurricanes Katrina, Rita, and Wilma.
