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How to Handle Travel Costs More Easily

January 21, 2022

Travel expenses are an expensive headache for companies. Although traditional business style has changed drastically with pandemics reducing business travel and meetings being conducted online, but we would like to explain how to simplify travel expenses for your company to be better prepared once the business travels start increasing.

Travel expense reimbursement includes not only the cost of the actual travel, but also budgeting for travel expenses that vary by destination, tracking actual expenses from records kept by employees, whether expenses are paid directly or reimbursed to employees in advance, whether expenses are fully deductible (lodging and round-trip travel) or only 50% deductible (employee meals while traveling).

Fortunately, we may be able to offer an alternative that severely limits travel expenses, encourages employees to be frugal, and minimizes tax complications. Briefly, the plan is to pay a flat daily or per diem for meals, incidental expenses, and lodging when employees are away on company business.

If the cost of the meal or lodging is higher than the per diem, then employees must pay the difference. If it is lower than the per diem, then employees pocket the difference. Also, if the per diem does not exceed the per diem that the federal government pays to employees traveling to the same destination as the employee, then recordkeeping is reduced as well as costs. All employees need to substantiate travel expenses for tax purposes and exempt the per diem from payroll and income taxes to provide a written record of the time, place, and business purpose of the trip. You do not need receipts or a penny recordkeeping.

Your business can deduct 100 percent of the lodging portion of the per diem and 50 percent of the meal portion. However, Congress has provided for a temporary allowance of a 100 percent deduction for food and beverage expenses for business meals provided by restaurants that area paid or incurred in 2021 and 2022.

To make the per diem program effective, you need a list of federal per diem reimbursement schedules that not only vary from year to year, but also from locality to locality. For example, as shown in the table below, the amount reimbursed for lodging in New York City, which is a cost of living is high, ranges from $159 to $258, while lower amounts are set to be reimbursed in regional cities.

A simpler version of the per-diem travel reimbursement program is available. Regardless of the actual government reimbursement rate for a particular locality within the lower 48 states, your company can reimburse travel to "low cost" travel destinations at one rate and use a higher rate for all "high cost" travel destinations. These so-called "high-low" rates are changed periodically.

You can check the per diem, lodging and meal costs for each state and locality at the following site. Rate are set by fiscal year, effective October 1 each year. For more details, please contact us and we will be happy to advise you on how to manage your travel and recordkeeping expenses.


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