define travel and entertainment expense

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What Are Travel Expenses?

Understanding travel expenses, the bottom line.

• Deductions & Credits
• Tax Deductions

Travel Expenses Definition and Tax Deductible Categories

Michelle P. Scott is a New York attorney with extensive experience in tax, corporate, financial, and nonprofit law, and public policy. As General Counsel, private practitioner, and Congressional counsel, she has advised financial institutions, businesses, charities, individuals, and public officials, and written and lectured extensively.

For tax purposes, travel expenses are costs associated with traveling to conduct business-related activities. Reasonable travel expenses can generally be deducted from taxable income by a company when its employees incur costs while traveling away from home specifically for business. That business can include conferences or meetings.

Key Takeaways

• Travel expenses are tax-deductible only if they were incurred to conduct business-related activities.
• Only ordinary and necessary travel expenses are deductible; expenses that are deemed unreasonable, lavish, or extravagant are not deductible.
• The IRS considers employees to be traveling if their business obligations require them to be away from their "tax home” substantially longer than an ordinary day's work.
• Examples of deductible travel expenses include airfare, lodging, transportation services, meals and tips, and the use of communications devices.

Travel expenses incurred while on an indefinite work assignment that lasts more than one year are not deductible for tax purposes.

The Internal Revenue Service (IRS) considers employees to be traveling if their business obligations require them to be away from their "tax home" (the area where their main place of business is located) for substantially longer than an ordinary workday, and they need to get sleep or rest to meet the demands of their work while away.

Well-organized records—such as receipts, canceled checks, and other documents that support a deduction—can help you get reimbursed by your employer and can help your employer prepare tax returns. Examples of travel expenses can include:

• Airfare and lodging for the express purpose of conducting business away from home
• Transportation services such as taxis, buses, or trains to the airport or to and around the travel destination
• The cost of meals and tips, dry cleaning service for clothes, and the cost of business calls during business travel
• The cost of computer rental and other communications devices while on the business trip

Travel expenses do not include regular commuting costs.

Individual wage earners can no longer deduct unreimbursed business expenses. That deduction was one of many eliminated by the Tax Cuts and Jobs Act of 2017.

While many travel expenses can be deducted by businesses, those that are deemed unreasonable, lavish, or extravagant, or expenditures for personal purposes, may be excluded.

Types of Travel Expenses

Types of travel expenses can include:

• Personal vehicle expenses
• Taxi or rideshare expenses
• Airfare, train fare, or ferry fees
• Laundry and dry cleaning
• Business meals
• Business calls
• Shipment costs for work-related materials
• Some equipment rentals, such as computers or trailers

The use of a personal vehicle in conjunction with a business trip, including actual mileage, tolls, and parking fees, can be included as a travel expense. The cost of using rental vehicles can also be counted as a travel expense, though only for the business-use portion of the trip. For instance, if in the course of a business trip, you visited a family member or acquaintance, the cost of driving from the hotel to visit them would not qualify for travel expense deductions .

The IRS allows other types of ordinary and necessary expenses to be treated as related to business travel for deduction purposes. Such expenses can include transport to and from a business meal, the hiring of a public stenographer, payment for computer rental fees related to the trip, and the shipment of luggage and display materials used for business presentations.

Travel expenses can also include operating and maintaining a house trailer as part of the business trip.

Can I Deduct My Business Travel Expenses?

Business travel expenses can no longer be deducted by individuals.

If you are self-employed or operate your own business, you can deduct those "ordinary and necessary" business expenses from your return.

If you work for a company and are reimbursed for the costs of your business travel , your employer will deduct those costs at tax time.

Do I Need Receipts for Travel Expenses?

Yes. Whether you're an employee claiming reimbursement from an employer or a business owner claiming a tax deduction, you need to prepare to prove your expenditures. Keep a running log of your expenses and file away the receipts as backup.

What Are Reasonable Travel Expenses?

Reasonable travel expenses, from the viewpoint of an employer or the IRS, would include transportation to and from the business destination, accommodation costs, and meal costs. Certainly, business supplies and equipment necessary to do the job away from home are reasonable. Taxis or Ubers taken during the business trip are reasonable.

Unreasonable is a judgment call. The boss or the IRS might well frown upon a bill for a hotel suite instead of a room, or a sports car rental instead of a sedan.

Individual taxpayers need no longer fret over recordkeeping for unreimbursed travel expenses. They're no longer tax deductible by individuals, at least until 2025 when the provisions in the latest tax reform package are due to expire or be extended.

If you are self-employed or own your own business, you should keep records of your business travel expenses so that you can deduct them properly.

Internal Revenue Service. " Topic No. 511, Business Travel Expenses ."

Internal Revenue Service. " Publication 463, Travel, Gift, and Car Expenses ," Page 13.

Internal Revenue Service. " Publication 5307, Tax Reform Basics for Individuals and Families ," Page 7.

Internal Revenue Service. " Publication 463, Travel, Gift, and Car Expenses ," Pages 6-7, 13-14.

Internal Revenue Service. " Publication 463, Travel, Gift, and Car Expenses ," Page 4.

Internal Revenue Service. " Publication 5307, Tax Reform Basics for Individuals and Families ," Pages 5, 7.

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What Business Entertainment Expenses are Deductible? Not Many

What are entertainment expenses.

• What's Deductible/What's Not

Entertainment and Employees

• Entertainment vs. Advertising

For More Information

Bloom Productions / Digital Vision / Getty Images

The 2017 Tax Reform Law made some drastic cuts to entertainment expenses and many entertainment expenses are no longer deductible.   Beginning with the 2018 tax year and going forward, here's what has changed: 

If it's entertainment, it's not deductible, Entertainment is a general term that the IRS says is "entertainment, amusement, or recreation, such as entertaining at night clubs, cocktail lounges, theaters, country clubs, golf and athletic clubs, sporting events, and on hunting, fishing, vacation, and similar trips, including such activity relating solely to the taxpayer or the taxpayer’s family."

"Entertainment" may also include costs for personal, living, or family needs of a business customer or their family. For example, this would include food and beverages, hotel, or car.  

But entertainment doesn't include such items as

• A meal provided to an employee working overtime
• A hotel room paid for by the company for an employee's business trave
• A car used by an employee for business driving  

These expenses are deductible business expenses, provided they meet IRS requirements.

What's Deductible/What's Not

Generally, the IRS doesn't allow business to deduct costs for activities generally considered entertainment, amusement, or recreation, or for a facility used in connection with such activity. Taking a client or customer ​to an "experience" is no longer deductible.

For example, a box at the ballpark, tickets to a concert, or a golf outing with clients is not deductible. Entertainment expenses for an employee who is traveling on company business are also not deductible.  

But business meal costs are still deductible at 50%. So, a businessperson or salesperson can take a client to lunch to discuss business and the meal cost is still deductible.  

If you can separate the cost of a meal at an entertainment event and the cost of the event and you have a separate receipt for the meal expense, you can deduct the meal cost at 50%. For example, if you buy tickets to a skybox a sporting event and have a catered meal at the event, you can deduct the meal but not the cost of the skybox.  

You may deduct entertainment expenses that are compensation to the person, and are reported on Form W-2 for an employee or Form 1099-NEC for an independent contractor. Special deduction rules apply if the recipient is an officer, director, or other special types of business owners.  

You may also deduct expenses for some types of events for the benefit of employees, except for highly compensated employees. For example, your company picnic or holiday party for employees can meet the test. A catered meal for employees at your office or elsewhere at your business location for the purpose of presenting employee awards would also probably be deductible as a business expense and it would be 100% deductible,  

For employees traveling for business purposes, most of their expenses are deductible, including lodging and meals. But you can't deduct entertainment expenses for these employees.

An Example: If an employer gives a hotel room or an automobile to an employee who is on vacation, that would be considered as entertainment of the employee, and would not be deductible.

Entertainment Expenses vs. Advertising and Promotion Expenses

If your business entertains the general public for the purpose of advertising or promotion, this cost is fully deductible as a business expense.  

For example, if a children's clothing store pays for the expense of hiring a clown at a community event, that might be considered promotion rather than entertainment. 

For more detailed information on entertainment expenses, see IRS Publication 463, Travel, Gift, and car Expenses and Publication 535 Business Expenses .

The information contained in this article is not tax or legal advice and is not a substitute for such advice. State and federal laws change frequently, and the information in this article may not reflect your own state’s laws or the most recent changes to the law. For current tax or legal advice, please consult with an accountant or an attorney.

IRS. " Publication 535 Business Expenses ." Page 9. Accessed Feb. 7, 2021.

IRS. " Internal Revenue Bulletin 2018-42 ." Accessed Feb. 7, 2021.

IRS. " Publication 535 Business Expenses ." Page 42. Accessed Feb. 7, 2021.

IRS. " Publication 535 Business Expenses ." Page 45. Accessed Feb. 7, 2021.

Deducting travel and entertainment expenses

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Dear Tax Talk, What entertainment expenses are tax deductible? If I give customers or employees tickets for sporting events, can I deduct these costs? — Monica

Dear Monica, Business-related entertainment expenses are tax-deductible expenses. Entertainment includes any activity generally considered to provide entertainment, amusement or recreation, and includes meals provided to a customer or client. In general, you can deduct only 50 percent of your business-related meal and entertainment expenses.

The 50 percent limit applies to business meals or entertainment expenses you have while:

• Traveling away from home (whether eating alone or with others) on business,
• Entertaining customers at your place of business, a restaurant or other location, or
• Attending a business convention or reception, business meeting or business luncheon at a club.

If employees travel for business, the costs of their meals, whether per diem or actual, are only 50 percent deductible. Although the costs of travel to a convention or conference are fully deductible, the meals while attending are only 50 percent deductible. If meals are provided as part of the conference and not separately stated, the full cost of the conference or convention is deductible.

Any item that might be considered either a gift or entertainment generally will be considered entertainment. If you give a customer tickets to a theater performance or sporting event and you do not go with the customer to the performance or event, you have a choice. You can treat the tickets as either a gift or entertainment, whichever is to your advantage. The deduction for gifts to customers is limited to $25 per person, per year. If the ticket cost more than $50, then the entertainment deduction would yield the greater tax savings.

If you deduct travel, entertainment, gift or transportation expenses, you must be able to prove (substantiate) certain elements of expense through adequate records. For example, most people maintain an appointment book or Microsoft Outlook calendar. If you have an entertainment expense associated with these meetings, you should indicate it in your log entry. The entry together with a charge on your credit card would be adequate records for an examination. Credit card charges alone do not provide sufficient detail. A log for tickets as well as other gifts distributed to customers or employees should be kept.

Ask the adviser

To ask a question on Tax Talk, go to the “Ask the Experts” page and select “Taxes” as the topic. Read more Tax Talk columns.

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.

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IRS Code 274: Understanding Entertainment and Meal Expenses

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The wide-ranging tax reform introduced by the Tax Cuts and Jobs Act has left business owners across the United States wondering which expenses they can deduct from taxes.

IRS Code 274, a section of the Internal Revenue Code that defines deductible entertainment, recreation, amusement, and meal expenses, was largely affected by the TCJA.

The IRS subsequently released Notice 2018-76 , REG-100814-19, and T.D. 9925 to clarify further the deduction of meal expenses in relation to entertainment activities.

Although up to 50% of certain entertainment expenses were deductible before 2018, these deductions are unavailable after the TCJA. Businesses can still deduct the costs of meals from federal taxes but only under certain conditions.

Let’s take an in-depth look at IRS Code 274 and see which meal expenses you can claim on your tax return .

Table of Contents

IRC Section 274 After TCJA

Claiming deductions for entertainment expenses was a hot topic long before TCJA came into effect. Under IRC Section 274, claiming these expenses was disallowed before the changes were introduced in 2018.

However, the tax code offered an exception for entertainment expenses directly related to or associated with actively conducting business, allowing taxpayers to deduct up to 50% of their entertainment costs.

The 50% limit was also applicable to business meal expenses. The regulations in Section 274 changed after TCJA went into effect, disallowing the deduction of all entertainment expenses and severely limiting the deduction of meal expenses.

Section 274 vaguely defined the rules for writing off meal expenses during entertainment, amusement, and recreational activities. The IRS released additional regulations in February and October 2020 addressing the changes the TCJA introduced.

Despite this, the rules employers and employees must follow when deducting meal expenses remain difficult to understand.

A Glance at T.D. 9925

According to Section 274, meal expenses are deductible if the following two conditions are satisfied:

• The meal isn’t lavish under the circumstances and
• The taxpayer (or taxpayer’s employee) is present while the food and drinks are furnished.
• Per Section 162(a), the meal must be an ordinary and necessary expense related to a trade or business.

Under these circumstances, businesses can deduct 50% of the meal’s cost. The T.D 9925 Meals and Entertainment Expenses Under Section 274 document published in October 2020 offers additional guidelines for furnishing meals in different contexts.

1. Business Meals

The IRS conducts an objective test and considers the nature of a taxpayer’s business when evaluating if a particular activity can be regarded as entertainment. Consequently, the deduction of all expenditures related to an entertainment activity is disallowed.

Businesses cannot deduct the costs of a sports club and social club membership fees or similar expenses from their taxes.

The T.D 9925 document indicates that costs of business meals don’t qualify as entertainment unless they’re furnished during an entertainment activity, in which case their deduction is disallowed.

Food and drinks served at an entertainment activity aren’t considered an entertainment expenditure if their cost is stated on a separate receipt, bill, or invoice. However, they must be furnished for a business associate.

For instance, if you purchase tickets for a Lakers game for you and a business associate, their cost isn’t deductible. Moreover, if you put the food and drinks you’ll consume during the game on the same bill, that expense is also nondeductible.

However, if you buy the tickets, beverages, and food separately, you can deduct 50% of the food and drink cost. Similarly, you can take a business associate to dinner before the game and deduct the amount you spend as a business meal.

Also, the expenses of a meeting held outside of a company’s office are not subject to deduction limits. Still, a company cannot deduct over 50% of the cost of food and beverages served during the meeting.

2. Travel Meals

The rules for the deduction of travel meals weren’t affected by TCJA. However, employers and employees must still follow the general meal deductions guidelines. Moreover, the rules for paying per diems to employees for business-related travel expenses remain the same.

An employer is allowed a travel meal deduction if their employee was present when food and beverages were furnished, provided that a meal wasn’t lavish.

Meals for spouses, dependents, and other individuals traveling with a taxpayer’s employee are nondeductible unless they’re employed by the same company or their presence on the trip is necessary for business purposes.

3. Meals at Recreational or Social Activities

Taxpayers who supply food and beverages during social or recreational events aren’t subject to the 50% deduction limitation. The regulation doesn’t apply to highly compensated employees or employees with over 10% interest in their employer’s company.

Consequently, businesses can deduct their entire meal and beverage expenditures for the following activities:

• Meals and drinks at the company cafeteria
• Catering at an open house staged by a real estate agent
• Food and beverages served at seasonal camps for camp counselors
• The cost of the food and drinks furnished by a restaurant or a catering service to its employees.

As of January 1, 2023, businesses can only write off 50% of a meal’s cost purchased from a restaurant, even though this expense was fully deductible in 2021 and 2022.

Moreover, the 50% deduction limit applies to snacks employers furnish in the pantry or other office parts that don’t qualify as spaces where social or recreational activities can occur.

4. De Minimis Fringe Benefits

Section 132(e)(1) offers the following definition of the ‘de minimis fringe’:

 ‘Any property or service the value of which is, after taking into account the frequency with which similar fringes are provided by the employer to its employees, so small as to make accounting for it unreasonable or administratively impracticable.’

These benefits include the food and beverages excludable from an employee’s wages. Section 274 regulations say de minimis fringe benefits are subject to a 50% deduction limit.

Section 274(o) stipulates that starting from December 31, 2025, employers will be disallowed from deducting expenses incurred while operating a facility described in Section 132(e)(1) or costs of providing food and drinks in such facilities.

Consequently, the food and drinks companies provide for their employees at the company’s cafeteria or similar facilities will become entirely nondeductible from 2026.

5. Additional Exemptions

Several exceptions enable companies to deduct the full cost of meals and beverages and circumvent the 50% deduction limit. Food and beverage expenditure is fully deductible under the following conditions:

• Costs of food and drinks are reimbursed
• Meal expense is a compensation
• 50% of food and beverage is for the general public, such as clients or visitors
• The cost of food served at picnics and similar events

The rules for deducting the costs of food and beverages furnished at charitable events remain the same after TCJA. Nonprofit organizations usually break down their expenditures for these events into meals, entertainment, and charitable contributions .

The entertainment costs aren’t deductible, and a 50% deduction limit applies to the meal expenses, while donations are 100% deductible.

It’s also worth adding that according to the most recent Section 274 regulations, meal expenditure deductions can include the cost of food or drinks, delivery fees, tips, and sales tax.

Frequently Asked Questions

Individual taxpayers cannot claim an itemized deduction for their meal expenditures unless they’re freelancers or receive distributions from an S corporation, LLC, or similar pass-through entity.

The IRS doesn’t limit the overall deduction amount for meal expenses. But in most cases, you cannot write off more than 50% of your total meal expenditure in a tax year.

Before 2023, you could only deduct 50% of meal and entertainment expenses included in compensation, but from 2023 onward; these expenses are fully deductible.

Keeping a record of correspondence with a business associate and receipts that substantiate that you used the amount you’re claiming on the return to pay for a meal are some of the methods you can use to prove that the meal expense was business related.

Making Sense of Meal and Entertainment Deductions

The perpetual amendments to IRS Code 274 have made keeping up with the meal and entertainment expenditure deduction regulations difficult.

Moreover, T.D 9925 lays out the final regulations for deductions of meal expenses on 56 pages, so you must crawl through the text to find information about the meal expenses you can and cannot claim.

According to the new regulations, entertainment expenses are nondeductible. Section 274 indicates that taxpayers can deduct 50% of their meal expenses only under certain conditions.

Although the government doesn’t plan to amend Section 274 further, you should still check which meal expenses are deductible before each filing season.

Logan is a practicing CPA and founder of Choice Tax Relief and Money Done Right. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.

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Home > Finance > Travel Expenses Definition And Tax Deductible Categories

Travel Expenses Definition And Tax Deductible Categories

Published: February 11, 2024

Learn about travel expenses, their definition, and tax deductible categories in finance. Maximize your tax deductions and save money while traveling.

• Definition starting with T

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Maximizing Your Travel Expenses: A Guide to Tax Deductible Categories

Are you a frequent traveler who wants to make the most out of your travel expenses? Or maybe you’re a business owner looking to understand the tax deductible categories related to travel. Either way, you’ve come to the right place! In this article, we will explore the definition of travel expenses and discuss the various categories that may be eligible for tax deductions. So, let’s dive in and discover how you can optimize your finances while enjoying your travels!

Key Takeaways:

• Understanding the definition of travel expenses is crucial for maximizing your tax deductions.
• Know the tax deductible categories to ensure you claim all eligible expenses.

Defining Travel Expenses

Travel expenses, in a broad sense, refer to the costs associated with a trip taken for business, work, or investment purposes. These expenses can include transportation, lodging, meals, entertainment, and other incidental expenses. However, it’s important to note that not all travel-related expenses are tax deductible.

When it comes to tax deductions, the IRS requires that your travel expenses meet certain criteria. Generally, the expenses must be necessary, ordinary, directly related to your business or work, and proper and appropriate in the context of your profession. It’s always a good idea to consult with a tax professional to ensure you meet all the necessary requirements.

Tax Deductible Categories for Travel Expenses

1. Transportation Expenses:

Transportation costs usually comprise a significant portion of travel expenses. These can include airfare, train or bus tickets, rental car fees, taxi fares, and even parking fees. Keep in mind that personal expenses unrelated to your business or work are not considered tax deductible.

2. Lodging Expenses:

When traveling for business, your accommodations can be tax deductible. This includes hotel stays or rental expenses for apartments or houses. However, if you combine business travel with personal vacations, only the expenses directly related to your business activities are eligible for tax deductions.

3. Meal Expenses:

The cost of meals during your business travel can also be tax deductible, but be mindful of the regulations set forth by the IRS. Generally, meals must be directly related to the active conduct of your business, with only 50% of the cost being eligible for deduction. Remember to keep receipts and make note of the business purpose of each meal.

4. Entertainment Expenses:

In certain circumstances, entertainment expenses incurred during your business travel can be tax deductible. These expenses typically include entertaining clients or customers, attending conferences or trade shows, and networking events. As with meals, it’s important to maintain documentation such as receipts and details of the business purpose for each expense.

5. Incidental Expenses:

Incidental expenses refer to smaller costs incurred during your travel, such as tips, baggage fees, and laundry expenses. Though they may seem insignificant, these expenses can add up over time. By keeping track of them and ensuring they are directly related to your business activities, you can potentially claim them as tax deductions.

The Bottom Line

Understanding the categories of tax-deductible travel expenses is crucial for optimizing your finances. By familiarizing yourself with these categories and maintaining proper documentation, you can ensure that you claim all eligible expenses and maximize your tax deductions.

Remember, consulting with a tax professional is always a wise decision to ensure compliance with the ever-changing regulations. So, go ahead and explore the world while making the most of your travel expenses with these tax deductible categories!

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T&E Meaning: Travel & Expenses Guide

Our “T&E Meaning: Travel & Expenses Guide” explains everything about managing travel & expenses.

T&E basics are explained here, with emphasis on their importance and significance to businesses . Manual tracking is tough, automation is handy, and T&E policies are a must.

Get to know how managing T&E costs not only helps businesses save time, hassle, and money, but it also helps them maximize budgets, negotiate better deals, and get more transparent about their finances. Take a look at how efficiency and cost control come together in the world of T&E management.

TABLE OF CONTENTS

What Does T&E Mean?

The business implications of t&e, managing t&e costs, benefits for cost reduction, benefits for business travelers, implementing a t&e management system, expense categories for reimbursement, expense management process, implementing a t&e policy, t&e: travel & expenses faq.

• Expense Management Software ✅

“Travel and expense,” known as T&E in the business world , refers to employee travel and client entertainment costs. It’s a vital component in the business landscape.

In businesses, where 10% of budgets are allocated to T&E , it plays a significant role as an operating cost. Understanding T&E is essential, as it not only impacts financial management , but also influences business efficiency.

Among businesses, T&E expense management is the second most difficult to control. This underscores the importance of effective oversight and management. Since the expenses incurred during travel and entertainment are so diverse, it’s vital to keep a tight eye on things.

T&E data can be hard to consolidate and evaluate because it’s often in disparate forms and locations. So making a comprehensive view of expenses can be hard. You can get errors and inefficiencies if you track and reconcile these expenses manually across different channels.

In order to optimize financial operations, businesses need a good T&E management system that gives them visibility and control.

Latest Statistics About Travel & Expenses

According to the following research by PRnewswire , here’s a summary of the latest statistics and insights on how companies are managing Travel & Expenses (T&E) for their employees:

Key Findings:

• Increase in Travel Spend Among SMEs: Despite economic uncertainties, over a third of surveyed companies (36%) plan to spend more than $250k annually on travel, with 16% expecting to spend over $500k.
• Corporate Travel Rebound: A 2022 poll from the Global Business Travel Association indicates a near full recovery (63%) in domestic business travel compared to 2019 levels.
• Outdated T&E Policies: More than half of the respondents (58%) have either outdated T&E policies or no T&E policies at all, leading to confusion and inefficiency in managing expenses.

Challenges in T&E Management:

• Direct Booking of Travel: 44% of respondents book travel directly, bypassing corporate booking tools, often due to a lack of knowledge about these tools.
• Inefficient Expense Management: About 32% of companies still rely on manual processes for managing expenses, leading to time-intensive tasks and dissatisfaction with current tools.
• Complexity in Expense Approval: Many find the process of reviewing and approving expenses complex, with 37% describing it as such.

Impact of Remote Work:

• The shift to remote or hybrid work environments has led to more corporate cards being issued and a decentralization of expense management processes.
• This change has highlighted the inefficiencies of legacy systems, with a lack of automation and real-time visibility.

The management of T&E costs is crucial if you’re looking to reduce expenses. T&E budgets require meticulous oversight and control, but manually tracking them is time-consuming, error-prone, and inefficient.

In order to address these issues, T&E management systems play a pivotal role. They automate expense tracking, so you can see what’s happening in real-time. By gaining this visibility, companies can figure out what areas they can cut costs in, and identify duplicate expenses and fraudulent claims.

In essence, your business can improve profitability through a well-implemented T&E system, enhancing cost-effectiveness, and ensuring expenses align with company policies.

It’s great to know how much T&E you spend. Armed with accurate data, businesses can negotiate better prices with suppliers, enabling them to save money. It also keeps financial resources safe by preventing costly issues like duplicate invoices and fraud expense claims.

Nearly 20% of travel & expenses stray from established policies, so businesses have to identify and fix those discrepancies. Keeping expenses aligned with policies and minimizing deviations reduces unnecessary costs and helps organizations save money.

In order words, you can make more money by managing your costs !

The travel & expense management process offers benefits to employees who occasionally shoulder out-of-pocket expenses for their companies.

It’s hard to overemphasize how important prompt reimbursement is to employee satisfaction . When business travelers know their expenses will be reimbursed promptly , they feel confident making purchases on behalf of the company.

In addition to enhancing employee experience , this assurance helps employers stay on top of cost-effective and efficient business practices, creating a win-win for everyone.

In addition to enhancing expense control and efficiency, T&E management systems can give companies unparalleled insight into their spending patterns, allowing them to keep track of expenses in real time. By knowing what’s going on, businesses can make informed decisions, maximize budgets, and negotiate better deals with suppliers.

Furthermore, I think it’s important to advocate the use of tools to make company expense policies more compliant and aligned with company objectives . These policies serve as guidelines for employees, making sure expenses stay compliant and aligned with company goals. They also help prevent overspending and encourage cost-consciousness.

Aside from that, there are tons of advantages to digitizing and automating expense reporting. Businesses can reduce errors and processing times by digitizing expense reports and automating receipt reimbursement. Not only does this improve employee satisfaction, but it also streamlines the accounting process, making it more efficient and accurate.

By incorporating these advanced technologies into T&E management systems , businesses can enhance their financial agility and control costs.

For fiscal responsibility and policy compliance , it’s important to publish clear regulations and categories for T&E expenses. It keeps fraud at bay and helps you manage your spending better. These guidelines give employees clarity about what’s eligible and what’s not.

An expense category covers all kinds of expenses, such as flight tickets, taxi fares, and train tickets. Meals for business, like client entertainment dinners and conference dinners, are also included. Office expenses, like IT equipment and supplies for remote work, are another crucial category . Finally, lodging expenses, for things like conferences, are important.

Expenses you don’t usually get reimbursed are just as important. Examples include personal grooming activities like haircuts. Companies can avoid unnecessary costs , maintain fiscal discipline, and foster a culture of financial responsibility by defining these categories.

Five key stages make up the standard expense reimbursement process, each with its own importance:

Pre-authorization :

The first step involves reviewing the company’s T&E policies to ensure that expenses are aligned with the company’s guidelines. It’s a proactive measure to prevent unnecessary spending.

In order to ensure expenses are well-documented and within budget, employees may need approval or follow specific payment procedures.

Reporting :

Employees must accurately report expenses , including receipts or digital records , as soon as they’re incurred.

It’s important to submit reports on time to maintain financial transparency and comply with reimbursement deadlines.

Managers or designated approvers review expense claims and accept or reject them based on company policies and budgets.

Automating this step can speed up the approval process.

Reimbursement :

A timely reimbursement process is crucial for employee satisfaction . Once approved, the reimbursement process kicks in, making sure employees get their money as soon as possible.

By streamlining this stage, you build employee trust and encourage them to spend on behalf of the company.

Accounting :

Last but not least is accurate record-keeping and accounting . Financial teams use it for tax compliance, financial statements, and audits.

It ensures the company stays compliant with legal regulations and maintains a clear financial trail.

By making each stage efficient, you’ll not only be able to control costs, but you’ll also foster transparency, policy adherence, and employee satisfaction , resulting in better T&E expense management.

It’s important for businesses to have a well-structured travel and expense policy . Besides setting clear expectations for employees, a T&E policy encourages responsible spending . It provides a framework for managing expenses, ensuring consistency, compliance, and cost control.

There’s a lot to gain from automating the expense process, including using mobile apps for request and submission . It streamlines expense reporting, so employees can submit claims from anywhere. It’s not just time-saving, it’s more accurate.

In accounting, digitizing expense reports and automating receipt reimbursements improves efficiency even more. Manual data entry is replaced with automated processes, which means fewer errors and shorter processing times. In addition to boosting employee satisfaction, this simplifies accounting procedures, ensures compliance with legal regulations , and keeps a good financial record.

Using these technological advancements in T&E management enhances cost control and helps improve financial transparency and efficiency.

Save time, money, and headaches with Factorial’s expense management software

What is t&e?

“Travel and expense,” known as T&E in the business world, refers to employee travel and client entertainment costs. It’s a vital component in the business landscape.

What is the expense management process?

• Pre-authorization
• Reimbursement

What are examples of T&E expenses?

In most cases, travel and entertainment expenses relate to business trips and include transportation, meals, accommodations, and entertainment, all of which are related to business travel.

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Travel and Entertainment: Maximizing the Tax Benefits

Don’t overpay your income taxes by overlooking expenses that you are entitled to deduct. Use this Financial Guide to ensure you are handling your business travel and meal costs in a tax-wise manner.

Table of Contents

Travel expenses.

• Entertainment Expenses

How Do You Prove Expenses Are “Directly Related?”

How do you meet the “associated with” test, for whom can you get the deduction.

• Recordkeeping And Substantiation Requirements

Employees “Fully Reimbursed”

Auto expenses.

This Financial Guide shows you how to take advantage of all of the travel and entertainment expenses you’re legally entitled to and offers guidance on which expenses are deductible and what percentage of them you can deduct. It also discusses the importance of following IRS rules for keeping records and substantiating your expenses in order to avoid an audit.

Tax law allows you to deduct two types of travel expenses related to your business, local and what the IRS calls “away from home.”

• First, local travel expenses. You can deduct local transportation expenses incurred for business purposes, for example, the cost of getting from one location to another via public transportation, rental car, or your own automobile. Meals and incidentals are not deductible as travel expenses, although as you will read later in this guide, you can deduct meals as an entertainment expense as long as certain conditions are met.
• Second, you can deduct away from home travel expenses-including meals and incidentals; however, if your employer reimburses your travel expenses, your deductions are limited.

Local Transportation Costs

The cost of local business transportation includes rail fare and bus fare, as well as the costs of using and maintaining an automobile used for business purposes. For those whose main place of business is their personal residence, business trips from the home office and back are considered deductible transportation and not non-deductible commuting.

Please see the special section below for the most effective ways of deducting auto expenses.

You generally cannot deduct lodging and meals unless you stay away overnight. Meals may be partially deductible as an entertainment expense as discussed below.

Away From-Home Travel Expenses

You can deduct one-half of the cost of meals (50 percent) and all of the expenses of lodging incurred while traveling away from home. The IRS also allows you to deduct 100 percent of your transportation expenses as long as business is the primary reason for your trip.

To be deductible, travel expenses must be “ordinary and necessary” , although “necessary” is liberally defined as “helpful and appropriate,” not “indispensable.” The deduction is also denied for that part of any travel expense that is “lavish or extravagant,” though this rule does not bar deducting the cost of first-class travel or deluxe accommodations or (subject to percentage limitations below) deluxe meals.

What does “away from home” mean?

To deduct the costs of lodging and meals (and incidentals-see below) you must generally stay somewhere overnight. In other words, away from your regular place of business longer than an ordinary day’s work and you need to sleep or rest to meet the demands of your work while away from home. Otherwise, your costs are considered local transportation costs and the costs of lodging and meals are not deductible.

Where is your “home” for tax purposes?

The general view is that your “home” for travel expense purposes is your place of business or your post of duty. It is not where your family lives (some courts have stated that it’s the general area of your residence). Here is an example:

George’s family lives in Boston and George works in Washington, DC. George spends the weekends in Boston and the weekdays in Washington, where he stays in a hotel and eats out. For tax purposes, George’s “home” is in Washington, not Boston, therefore, he cannot deduct any of the following expenses: cost of traveling back and forth between Washington and Boston, cost of eating out in Washington, cost of staying in a hotel in Washington, or any costs incurred traveling between his hotel in Washington and his job in Washington (the latter are considered non-deductible commuting costs).

There are some rules in the tax law concerning where a taxpayer’s “home” is for purposes of deducting travel expenses that are less clear such as when a taxpayer works at a temporary site or works in two different places.

We’ll cover these rules briefly in these two examples:

Example #1: Joe, who lives in Connecticut, works eight months out of the year in Connecticut (from which he usually earns about $50,000) and four months out of the year in Florida (from which he usually earns about $15,000). Joe’s “tax home” for travel expense purposes is Connecticut. Therefore, the costs of traveling to and from the “lesser” place of employment (Florida), as well as meals and lodging costs incurred while working in Florida, are deductible.

Example #2: Susan works and lives in New York. Occasionally, she must travel to Maryland on temporary assignments, where she spends up to a week at a time. Assuming Susan’s employer does not reimburse her for travel expenses, she can deduct the costs of meals and lodging while she’s in Maryland, as well as the costs of traveling to and from Maryland. This holds true because her work assignments in Maryland are considered temporary since they will end within a foreseeable time. If an assignment is considered indefinite, that is, expected to last for more than a year, under the tax law, travel, meal, and lodging costs are not deductible.

Here’s a list of some deductible away-from-home travel expenses:

• Meals (limited to 50 percent) and lodging while traveling or once you get to your away-from-home business destination.
• The cost of having your clothes cleaned and pressed away from home.
• Costs for telephone, fax or modem usage.
• Costs for secretarial services away-from-home.
• The costs of transportation between job sites or to and from hotels and terminals.
• Airfare, bus fare, rail fare, and charges related to shipping baggage or taking it with you.
• The cost of bringing or sending samples or displays, and of renting sample display rooms.
• The costs of keeping and operating a car, including garaging costs.
• The cost of keeping and operating an airplane, including hangar costs.
• Transportation costs between “temporary” job sites and hotels and restaurants.
• Incidentals, including computer rentals, stenographers’ fees.
• Tips related to the above.

However, many away-from-home travel expenses are not deductible or are restricted in some way. These include:

Commuting expenses. The costs of traveling between your home and your job are not deductible.

Travel as a form of education. Trips that are educational in a general way, or improve knowledge of a certain field but are not part of a taxpayer’s job, are not deductible.

Job search expenses. Tax reform eliminated miscellaneous deductions for tax years 2018 through 2025.

Seeking a new location. Travel costs (and other costs) incurred while you are looking for a new place for your business (or for a new business) must be capitalized and cannot be deducted currently.

Luxury water travel: If you travel using an ocean liner, a cruise ship, or some other type of “luxury” water transportation, the amount you can deduct is subject to a per-day limit.

Seeking foreign customers: The costs of traveling abroad to find foreign markets for existing products are not deductible.

Starting in 2008, travel (and other) costs incurred in unsuccessfully trying to acquire a specific business are currently deductible.

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Meal and Entertainment Expenses

Prior to tax reform, there were limits and restrictions on deducting meal and entertainment expenses, with most deductible at 50 percent. Under tax reform, there were a number of changes, the most notable being that entertainment expenses paid or incurred after December 31, 2017, are not deductible unless they fall under specific exceptions, for example, expenses incurred for social activities primarily for the benefit of your employees. As such, reasonable costs for food and refreshments for year-end parties for employees are 100 percent deductible.

Meal costs must be “ordinary and necessary” and not “lavish or extravagant” and directly related to or associated with your business. They must also be substantiated.

Prior to 2018, if you rented a skybox or other private luxury box for more than one event, say for the season, at the same sports arena, you generally could deduct more than the price of a non-luxury box seat ticket. Each game or other performance counted as one event, and the deduction for those seats was subject to the 50 percent entertainment expense limit. Starting January 1, 2018, however, that deduction is eliminated. Furthermore, even if the costs of food and beverages are separately stated, you cannot deduct these expenses.

Deductions are still disallowed for depreciation and upkeep of “entertainment facilities” such as yachts, hunting lodges, fishing camps, swimming pools, and tennis courts. However, the costs of entertainment provided at such facilities are no longer deductible. Prior to 2018, these expenses were deductible at 50 percent, subject to entertainment expense limitations.

Dues paid to country clubs or social or golf and athletic clubs are not deductible nor are dues that you pay to professional and civic organizations. Prior to 2018, these dues were deductible at 50 percent as long as your membership has a business purpose. Such organizations included business leagues, trade associations, chambers of commerce, boards of trade, and real estate boards.

The following section applies only to expenses incurred before January 1, 2018. As noted earlier, most entertainment-related expenses are no longer deductible.

Expenses are directly related if you can show:

• There was more than a general expectation of gaining some business benefit other than goodwill.
• You conducted business during the entertainment.
• Active conduct of business was your main purpose.

There is a presumption (in the eyes of the IRS) that events that take place in what it considers places non-conducive to doing business are not directly related to your business. These places include nightclubs, theaters, sporting events or cocktail parties. It also includes meetings with a group of people who are not business associates, at cocktail lounges, country clubs, or athletic clubs. However, you can overcome the presumption by showing that you engaged in a business discussion or otherwise conducted business during the event.

Even if you can’t show that the entertainment was “directly related” as discussed above, you can still deduct the expenses as long as you can prove the entertainment was “associated” with your business. To meet this test, the entertainment must directly precede or come after a substantial business discussion. Further, you must have had a clear business purpose when you took on the expense.

The person entertained must be a business associate. That is, someone who could reasonably be expected to be a customer or conduct business with you, including an employee or professional advisor.

In circumstances where it’s customary to entertain a business associate with his or her spouse, and your spouse also attends, entertainment of both spouses is deductible, thanks to the “closely connected rule.”

Recordkeeping and Substantiation Requirements

Tax law requires you to keep records that will prove the business purpose and amounts of your business travel, entertainment, and local transportation costs.

Which Records You Must Keep

You must substantiate the following business expenses:

• Travel expenses while away from home (including meals and lodging).
• Business meals and entertainment if allowed under a tax code exception, and
• Business gifts.

To substantiate these items, you must prove:

• The amount.
• The time and place of the travel, entertainment, or recreation, or the date and a description of the business gift.
• The business purpose, and
• The business relationship of the recipient of entertainment or gifts.

The most frequent reason for IRS’s disallowance of travel and entertainment expenses is the failure to show the place and business purpose of an item. Therefore, pay special attention to these aspects of your record-keeping. Keeping a diary or logbook and recording your business-related activities at or close to the time the expense is incurred is one of the best ways to document your business expenses.

Here’s how these rules apply to your record-keeping for travel expenses, entertainment expenses, and business gifts.

Away-from-home travel expenses. You must document the following for each trip:

• The amount of each expense, e.g., the cost of each transportation, lodging and meal. You can group similar types of incidentals together, i.e., “meals, taxis.”
• The dates of your departure and return and the number of days you spent on business.
• Your destination.
• The business reason for the travel or the business benefit you expect.

Entertainment expenses (exceptions allowed under the tax code) for tax years before 2018. You must prove the following for each claimed deduction for entertainment expenses:

• The amount of each separate expense, though incidentals may be totaled on a daily basis.
• The date of the entertainment.
• The name, title, and occupation (showing business relation) of the people you entertained.

Business gifts. You must keep the following documentation for a business gift to substantiate the deduction:

• The cost of the gift and the date it was made.
• The business reason for the gift.
• The name, title, and occupation of the recipient.
• A description of the gift.

Employees who are “fully reimbursed” by their employer must:

• Adequately account to their employer.
• Receive full reimbursement.
• Return any excess reimbursement.

As a fully reimbursed employee, you must adequately account to your employer by means of an expense account statement. If you are covered by (and follow) an “accountable plan,” and your reimbursements don’t exceed your expenses, you won’t have to report the reimbursements as gross income. Some per diem arrangements (by which you receive a flat amount per day) and mileage allowances can avoid detailed expense accounting to the employer, but proof of time, place, and business purpose is still required.

However, if your employer’s reimbursement plan is not “accountable,” you must report the reimbursements as income. Prior to 2018, you could deduct these expenses on your tax return as miscellaneous itemized deductions on Form 1040 Schedule A, subject to the two percent-of-adjusted-gross-income floor. Tax reform, however, eliminated miscellaneous deductions for tax years 2018 through 2025.

If you are self-employed and use a car for business, you have two choices as to how to claim the deduction for auto expenses. Parking fees and tolls may be deducted no matter which method you use.

• You can deduct the actual business-related costs of gas, oil, lubrication, repairs, tires, supplies, parking, tolls, chauffeur salaries, and depreciation, or
• You can use the standard mileage deduction, which is an inflation-adjusted amount that is multiplied by the number of business miles driven.

From 2018 through 2025, employees who use their cars for business but either don’t get reimbursed or are reimbursed under an employer’s “non-accountable” reimbursement plan can no longer deduct auto expenses on Form 1040 Schedule A.

The standard mileage rate produces a larger deduction for some business owners, while others fare better (tax-wise) by deducting actual expenses. Figuring your deduction using both methods tells you which method is better for you tax-wise.

Expensing and depreciating vehicle costs. Deduction options and amounts depend on the percentage used for business. Also, if the car is used more than 50 percent for business, it can be included as business property and qualify for Section 179 expensing in the year of purchase. The deduction is reduced proportionately to the extent the car is used for personal purposes. If you take this deduction, you can’t use the actual mileage for that vehicle in any year.

Depreciation. Assuming the car cost more than the Section 179 limit, or Section 179 is not available or is not claimed, depreciation is also allowed. Several depreciation options are available, but there are limits to the amount of depreciation that can be claimed per year. Depreciation otherwise allowable is reduced by the proportion of personal use. For example, a car used 20 percent for personal use is depreciated at 80 percent of the amount otherwise allowed.

Accelerated depreciation is defined as depreciation that is at a rate higher than normal that results from dividing the vehicle’s cost by the number of years it will be used. It is not allowed where personal use is 50 percent or more. If you claimed accelerated depreciation in a prior year and your business use then falls to 50 percent or less, you become subject to “recapture” of the excess depreciation (i.e., it’s included in income). Of course, using the standard mileage deduction described below allows you to avoid these limits.

Determining whether to use the standard mileage deduction. If you opt for the standard mileage rate, you simply multiply the current cents-per-mile rate by the number of business miles you drive for the year. Be aware, however, that the standard mileage deduction may understate your costs. This is especially true for taxpayers who use the car 100 percent for business, or close to that percentage.

Once you choose the standard mileage rate, you cannot use accelerated depreciation even if you opt for the actual cost method in a later year. You may use only straight line.

The standard mileage method usually benefits taxpayers who have less expensive cars or who travel a large number of business miles. To determine which method is better for you, make the calculations each way during the first year you use the car for business.

You may use the standard mileage for leased cars if you use it for the entire lease period. Or, you can deduct actual expenses instead, including leasing costs.

Recordkeeping. Tax law requires that you keep travel expense records and that you give information on your return showing business versus personal use. Not only is keeping good records essential in case of an audit, but it also allows you to make the most of your auto deductions. For example, you won’t be able to determine which of the two options is better if you don’t know the number of miles driven and the total amount you spent on the car. If you use the actual cost method, you’ll have to keep receipts as well. For many business owners, using a separate credit card for business simplifies your record-keeping.

Don’t forget to deduct the interest you pay to finance a business-use car if you’re self-employed.

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2024 guide to travel and expense management

T&e policy | best practices to an effective travel and expense policy, what is t&e, what are the benefits of a t&e policy (and what happens without one).

With only a handful of employees, managing travel expenses is still doable using Excel sheets and paper receipts. However, when companies are growing, the whole process of approving, reporting, and analyzing travel expenses gets more complex, and not only do finance and accounting teams take most of their valuable time for things that could be easily automated. Companies should define what the status quo is and what they want to achieve with automating their T&E. Once the T&E process is automated, it's simple to keep up with company growth or increased employee travel, and it will save a lot of administrative costs in the long run.

What does a T&E policy look like?

• Allowable business purposes for travel
• Booking tool and process (for air travel,, hotel rooms, public transportation, and car rental)
• Basic spending guidelines for each category including details of eligibility for upgrades to business class or first-class airfaresBest practices for reimbursable expenses,including necessary supporting documentation (for food, ground transportation, and other small expenses)
• Examples of non-reimbursable expenditure e.g. personal entertainment and policies for alcoholic beverages and non employees joining business trips for leisure purposes.
• The disciplinary action that will be taken if business travelers fail to comply with your policy

How T&E management tools can help

• Faster approval process and alerts for policy violations
• Cost savings from better policy compliance
• Accurate spending limits per team, department, or project
• Transparent, real-time data on travel and entertainment expenses
• Consolidated expense reporting from a single booking tool
• Advanced T&E cost tracking allowing finance teams to forecast future business travel expenses
• More accurate expense data. Analyze different expense categories and individual employee expenses in just a few clicks
• Ability to identify travel spend trends among employees and seek out loyalty memberships for experience-enhancing perks
• Faster reimbursement for out of pocket expense claims such as tolls, visa fees, travel insurance, business meals or mileage reimbursement when traveling in personal vehicles.

Out of policy flights in the search

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Corporate Travel and Entertainment Policy Best Practices

Traveling employees often incur significant expenses on company-funded trips. But how much is too much? According to recent statistics, businesses spend approximately $799 per person per day on a business trip. Expenses can quickly add up if not carefully watched over.  A travel and entertainment policy outlines what expenses are eligible, how much employees (and sometimes senior management) can spend on business-related travel and the specific terms for reimbursement.

In this article, we’ll explore what a travel and entertainment policy entails and how to make the most out of your business travel resources.

Travel and Entertainment Policy Definition

A travel and entertainment (T&E) policy is a set of regulations that govern business-related travel and entertainment expenses. It sets clear parameters regarding what is acceptable in an employee’s spending of company resources and reimbursement procedures. The policy also highlights acceptable activities for employees while traveling on company business; for instance, meetings and conferences.

Why Do You Need a Company Travel and Entertainment Policy ?

For starters, the primary goal of establishing a clearly defined T&E policy is to ensure that employees clearly understand what is expected of them when it comes to spending company funds on work-related trips. It also sets out the guidelines for hosting or entertaining clients for business purposes. 

The travel and entertainment policy also enables management to mitigate risks associated with misuse of funds and identify potential incidents of fraud, alongside non-compliance with legal requirements. 

With that said, here’s a more detailed breakdown of the main objectives of a travel and entertainment policy :

Fraud Prevention

Unfortunately, deliberate and unintentional fraudulent activity in corporate travel still plagues businesses, leading to significant losses in the long run. In fact, it is estimated that companies lose $125,000 to fraud on average. Although the causes and impact of fraud in business vary by department, traveling employees may contribute to fraudulent activity knowingly or unknowingly.  

This arises from the fact that employee and business goals for travel don’t always align. Occasionally, some employees will seek to benefit themselves at the expense of the company. A comprehensive policy prevents fraud by imposing strict procedures for the use of company resources and submission of the expense reports.

>> Related: 5 Ways FinTech Reduces Fraud <<

Better Resource Management

A well-thought-out travel and entertainment policy ensures that employees only adhere to activities that are acceptable and beneficial for the company’s objectives. For instance, paying for a client lunch meeting may be considered acceptable if it helps in solidifying mutually beneficial working relationships.

With a clear policy in place, businesses can ensure that their employees make the most of their allocated travel and entertainment expenses while avoiding overspending and poor management of company resources.

Cost Savings

As mentioned earlier, corporate travel expenses can pile up as a direct result of poor expense management and fraudulent activity. A corporate travel and entertainment policy shields businesses from such issues. This can be achieved by ensuring that spending on business trips, events, and other related activities is done in accordance with the expenses limited by the policy.

The policy also helps companies save money by ensuring that all expenses are properly accounted for and that the company is getting the best value for its money.

Elements of a Company Travel and Entertainment Policy

Different companies set out different policies that reflect their values and culture. Such elements should be tailored to the specific needs of the organization after taking into consideration its size, budget, regulations, and culture. 

Key elements of a T&E policy include:

The Scope of the Policy

First of all, how a company decides on its travel and entertainment policies does not just revolve around booking flights and hotels. There are regulations and guidelines that govern the spending of the company.

The scope of corporate travel and entertainment policies covers vital details such as: 

• The person/people responsible for authorizing travel.
• Who the policy applies to (junior or senior employees?).
• Possible risks.
• Expense reporting procedures.
• Reimbursement procedures.

The list goes on. In essence, the scope of the policy covers all the expectations for employees when traveling on behalf of the company or attending events.

>> Related: The Importance of Well-Defined Travel and Expense Policies for Businesses <<

Travel Approval/Authorization

All travel expenses, routes, and destinations should be authorized by appropriate managers and supervisors before they are incurred. Authorized expenses ensure that the trip is necessary for business, and will be covered by the company’s travel budget. Additionally, an authorization requirement will further help to prevent fraudulent expenses from being submitted for reimbursement.

Travel Budgeting Limits

While each company will have different budget limits, it is important for employees to stay within the budgeted amount so that expenses are kept under control.

Some key considerations for effective budget limits include:

• The number of days an employee will be expected to be away from work.
• The total cost of the trip.
• The number of people allowed to accompany an employee on a business trip.
• The types of travel that are approved (airfare, car rental, public transport, etc.).
• Spending on meals or entertainment during a business trip.

Once the total cost of the trip is determined, an appropriate limit can be set for how much money an employee can spend. This limit may be based on the number of people traveling with the employee, among other factors.

Travel Risk Management

Travel risk management involves assessing, monitoring, and controlling any risks associated with employee travel. The goal is to protect employees and the organization’s assets from risk by carefully anticipating these risks and adequately planning to mitigate them. 

A risk management plan may include:

• Establishing safety protocols for the use of local transport.
• Using approved agencies, suppliers, and companies to ensure quality services and avoid potential scams when booking flights or hotels.
• Creating a checklist for employees to complete prior to their departure. This checklist can include items such as passport and visa requirements, medical insurance, emergency contacts, etc.
• Employing tracking technology, such as GPS-enabled devices and applications to monitor an employee’s location during travel.
• Developing a communication plan for traveling employees so they can keep in touch with the company.
• Offering security training and advice to employees prior to their departure.
• Establishing an emergency contact list for traveling employees, in case of any incidents or emergencies.
• Ensuring that employees are familiar with local laws and customs before they leave.

By taking proactive steps to manage risks, businesses can ensure the safety of their employees while traveling.

>> Related: 10 Questions to Audit and Update Your Business Travel Policy <<

Travel Expense Reporting & Auditing

While T&E policies aim to provide clear travel guidelines for employees, it is important to point out that properly documenting and tracking employee expenses is essential for a company to manage its resources effectively.

Regular auditing further keeps the business compliant with tax regulation policies, and within budget.

When it comes to reporting and auditing travel expenses, there are several measures you can take to ensure accuracy and transparency. 

For starters, clear policies regarding acceptable expenses should be established and communicated to all employees. It should be clearly stated when these expenses must be reported, and more importantly, who is responsible for verifying them. If you’re in charge of a sizeable team, you may also want to consider using automated software systems to monitor and track employee spending in real-time. 

>> Related: Mapping the Travel Expense Accounting Process <<

Action Measures for Non-Compliance

Non-compliance with a company’s corporate travel and entertainment policy can lead to significant financial losses as well as potential legal issues. To ensure that all employees adhere to the rules, a clear action plan must be established for employees who do not comply.

First and foremost, any employee found guilty of violating the policy should receive a formal warning. The warning should be sent via email or letter and should include a detailed explanation of the violation.

If the violation persists, further action may be taken. This depends on company policy around fraud and could include disciplinary measures such as suspension, termination, or even legal action depending on the severity of the situation. 

Regardless, it is important to clearly define these consequences in the travel and entertainment policy so that employees are aware of the potential repercussions.

How to Create an Effective Corporate Travel and Entertainment Policy

Having a clear and effective corporate travel and entertainment (T&E) policy in place can help companies manage their expenses and set expectations for their employees. However, creating a policy that balances employee satisfaction and corporate cost control is no walk in the park.

A well-crafted T&E policy can help organizations save money on their travel and entertainment expenses while also ensuring that employees have a smooth and stress-free experience. 

Here are the key steps taken in developing an effective T&E policy:

Identify the Purpose of the Travel and Entertainment Policy

The purpose of a corporate travel and entertainment policy is to provide guidelines and regulations for traveling employees in their duty to the company. It ensures that company resources are used responsibly and ethically when traveling or entertaining on behalf of the company.

Establish Criteria for Travel

When creating a corporate travel policy, it is important to set clear criteria that determine who is eligible for business travel. Details such as the necessary qualifications, job title, and/or seniority level needed to be eligible for business travel can be outlined in the criteria. Additionally, the criteria for travel define the roles or responsibilities of each person traveling on behalf of the company.

Forecasting Your Budget

Forecasting the budget for business trips helps the company estimate how much money should be allocated for travel expenses and provides insight into which areas are likely to incur the most costs. Forecasting also allows you to set clear expense limits so that employees don’t overspend while on business trips. Some travel management platforms may even help you by calculating dynamic budgets based on real-time rates.

Setting Expense Limits

The policy should also specify which types of expenses are allowable and which are not. This will help employees understand what they can and cannot spend company funds on while traveling, as well as any limits that may apply.

Outlining Acceptable Expenses

It is important to list down what types of expenses are acceptable, as well as the limits on these expenses. 

When it comes to outlining acceptable expenses, there are several categories that should be addressed. Common examples of acceptable expenses in travel and entertainment policies may include transportation, accommodation, meals, and entertainment. It is equally important to specify what types of expenses are not allowed, for instance, personal purchases or services that are unrelated to business travel.

>> Related:  Highlights from the 2023 State of Business T&E Report <<

Handling Expense Claims

Another important aspect of a corporate travel and entertainment policy is to ensure that employees are submitting their expenses properly. To do this, employers should provide clear instructions on how to submit expense claims, as well as any documentation or receipts necessary to support the claim.

Establish a Timeline for Submitting Expense Claims

The company should set clear deadlines for submitting claims and require all claims to be approved before reimbursement is issued. By setting these expectations in advance, you can ensure that all employees are abiding by the same rules when it comes to filing travel and entertainment expenses.

Review All Receipts and Documentation

All receipts and documentation should be properly reviewed. This review should include an in-depth examination of both the original receipts and any accompanying documents. These may include itineraries, expense reports, or other forms of proof.

The purpose of this review is to ensure that any expenses incurred fall in line with the company’s budget. Additionally, the review provides an opportunity to check for any discrepancies or fraudulent activity. If a discrepancy is found, it should be reported to the appropriate supervisor/manager so that any necessary action can be taken.

Compare Expenses to Policy

It is important for businesses to compare employees’ actual expenses to the policy on a regular basis to ensure that all spending is compliant with company regulations.

A good way to compare expenses to policy is by using dedicated expense tracking software . These tools allow companies to track and review employee spending easily, as well as compare it against the policy.

Verify the Accuracy of Expenses

All expenses, no matter how minor, must be reported to the finance department. The responsible supervisor should then assess the accuracy of all expense reports before submitting them for reimbursement. In this process, you should provide a detailed review of individual expense items and overall accuracy of the report as a whole.

>> Related: Sample T&E Dashboards for Proactively Monitoring Compliance, Budget, and Anomalies <<

Follow-Up With Employees

Having a corporate travel and entertainment policy is essential for any business, but it’s just as important to ensure that the policy is being followed. To ensure compliance with company policies and regulations, managers should follow up with their employees regularly.

You should check in with your employees both before and after business trips to ensure that all expenses are properly documented and appropriate. Additionally, you should regularly review employee receipts and other expense documentation to ensure accuracy and compliance with the company’s travel policy.

Pay Approved Claims Promptly

As a business, it is important to pay any approved claims promptly. Doing so helps maintain a positive working relationship with employees and vendors.

When approving claims, ensure the total amount stated in the claim is accurate and all supporting documents are included. Supporting documents may include credit card statements, receipts, and other forms of proof. Additionally, it is important to confirm that the expenses are in line with corporate policy.

Creating a corporate travel and entertainment policy is an important part of a business expense management strategy. By establishing clear criteria for who is eligible for business travel, forecasting the budget, setting expense limits, specifying acceptable expenses, and monitoring spending, companies can ensure that their employee travel activities stay within budget.

What is a travel policy?

A travel policy can be defined as the rules and guidelines established by an organization for business travel matters. Such rules dictate who is eligible to travel, where, and how much they can spend on meals and accommodations. Other essential matters discussed in the policy include reimbursements for expenses.

Why create a business travel policy?

A well-constructed policy helps keep business travel safe, cost-effective, and compliant. The main reason for creating a business travel policy is to protect the organization from financial risks and potential legal issues associated with employee travel.

What should be included in a corporate travel policy?

A comprehensive corporate travel policy contains guidelines for employees and contractors to follow when handling both domestic and international travel expenses. Important matters to be included in the policy should cover reimbursement rates, allowable expenses, booking procedures and restrictions, and safety considerations.

What should you consider when creating a business travel policy?

Key considerations to keep in mind include the destinations and objectives of trips to be taken by employees. The size of the business should also be taken into consideration since startups often don’t have the same resources as established companies.

What’s included in a T&E expense report?

A T&E expense report typically includes details about the dates of travel, expenses incurred, the purpose of travel, and any other relevant information such as airline tickets purchased or hotel accommodation. The names of those attending can also be included along with the cost per person for all meals and entertainment activities.

What travel expenses are deductible?

Generally speaking, several business-related travel and entertainment expenses are deductible. Examples of deductible travel expenses may include transportation (airfare, car rentals, taxis, etc.), lodging (hotel stays), meals, and entertainment.

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Navigating around limits on meals and entertainment

• C Corporation Income Taxation

Business meals are generally deductible business expenses if the taxpayer proves a business connection. Entertainment expenses (meaning those of a type generally considered to be entertainment, amusement, or recreation) are fully nondeductible even if there is a business connection for the expense unless it falls into one of the exceptions listed below. The 50% disallowance rule limits the business deduction for certain otherwise deductible meals.

General rules

Meal expense deductions are subject to several conditions and limitations, some of which are common to business deductions generally. The requirement of a business connection for entertainment expenditures is specified in the Code by reference to particular facts and circumstances.

Meal expenses incurred by a taxpayer are deductible only if the expenses satisfy the following strict requirements imposed by the Code:

Ordinary and necessary:  Meal expenses must be ordinary and necessary (Sec. 162(a)). An ordinary expense is one that is common and accepted in the taxpayer’s business, trade, or profession. A necessary expense is one that is helpful and appropriate, although not necessarily indispensable, for the employer’s business, trade, or profession.

Business connection:  There must be a clear connection between the meal and a business event (such as a discussion, meeting, transaction, or negotiation). That is, the taxpayer must prove a valid business purpose for the business event that occurs before, during, or after the meal (Sec. 274(a) and Notice 87-23).

Lavish or extravagant:  The meal cost is deductible only to the extent it is not lavish or extravagant under the circumstances. Any portion deemed to be lavish or extravagant is not deductible (Sec. 274(k)).

Substantiation:  A deduction is allowed only for meal expenses that are properly substantiated (Sec. 274(d)).

Taxpayer’s presence:  The taxpayer or a representative must be present (Sec. 274(k)).

Entertainment

Entertainment includes food or beverages if they are provided during or at an entertainment activity and are not purchased separately from the entertainment activity, or the cost of the food and beverages is not stated separately from the cost of the entertainment on one or more bills, invoices, or receipts (Regs. Sec. 1.274-11(b)(1)(ii)).

Food and beverage expenses are excluded from otherwise disallowed entertainment under specific exceptions in Sec. 274(e). They may be deducted only if the expenses:

• Were related to food and beverages for employees furnished on the business premises of the taxpayer;
• Were treated as compensation to the employee who received the benefit;
• Were paid or incurred by the taxpayer in connection with the performance of services for another person and were reimbursed under an accountable plan;
• Were recreational, social, or similar activities (including use of facilities) primarily for the benefit of non-highly compensated employees;
• Were directly related to business meetings (not before or after the meeting);
• Were directly related and necessary to attendance at a business meeting or convention of a Sec. 501(c)(6) organization, such as business leagues and chambers of commerce;
• Are expenses for goods, services, and facilities made available by the taxpayer to the general public;
• Are expenses for entertainment sold to customers; or
• Are includible in the income of persons who are not employees as compensation for services rendered or as a prize or award.

See further details on these exceptions below.

Normally, any activity that is generally considered to be entertainment will be treated as subject to the limitation on deducting expenses under Sec. 274(a).

However, a taxpayer’s trade or business must be considered. For example, a theatrical performance, which would normally be considered an entertainment expense, would not be an entertainment expense for a professional theater critic attending the performance in a professional capacity (Regs. Secs. 1.274-11(b)(1)(iii), 1.274-12(a)(1), and 1.274-12(b)(3)).

Example 1. Business meal for a client:   G  takes  M,  her long-term advertising client, out to lunch. During lunch, they discuss  M ’s new advertising campaign.  G  may deduct the cost of the meal, subject to the 50% limitation.

Example 2. Business meal for an employee:   G  takes  J,  her employee, to lunch. While eating lunch, they discuss  J ’s annual performance review.  G  may deduct the cost of the meal, subject to the 50% limitation.

Example 3. Food and beverages incurred at entertainment event:   H , an attorney specializing in estate planning, invites  M,  a CPA, and  L,  a potential client, to a football game. While at the game,  H  pays for all of  M ’s and  L ’s refreshments. The cost of the game tickets are nondeductible entertainment expenses. The cost of the refreshments purchased separately at the game are deductible business meal expenses, subject to the 50% limitation.

Variation A:   H  invites  M  and  L  to share his company suite for the game, where they have access to food and beverages. The cost of the food and beverages is included in the suite package and is not invoiced separately. The entire cost of the outing is considered a nondeductible entertainment expense.

Variation B:  The cost of the food and beverages is stated separately in the invoice for the company suite and reflects the venue’s usual selling price for food and beverages if purchased separately. The cost of the suite is still a nondeductible entertainment expense, but the cost of the food and beverages is a deductible meal expense, subject to the 50% limitation.

Skybox rentals and associated meals

The full cost of renting a private enclosed unit in a stadium or arena, or skybox, is nondeductible (Sec. 274(g)). However, business meals provided in the skybox may be deductible (subject to the 50% disallowance rule unless they meet an exception) if a business discussion takes place and if the meals are billed or stated separately from the cost of the sky-box rental.

Coping with the disallowance rules for costs related to entertainment facilities

Generally, a self-employed taxpayer cannot deduct any expenditures for an entertainment facility even if there is a business connection (Sec. 274(a)(1)(B)). An entertainment facility is any property owned or rented and used for entertainment, amusement, or recreation (Regs. Sec. 1.274-2(e)(2)). Examples of entertainment facilities include yachts, hunting lodges, hotel suites, fishing camps, and swimming pools.

However, out-of-pocket expenses incurred while providing meals at an entertainment facility are treated like other meal expenses. These expenses may be deducted (subject to the 50% disallowance rule) if the taxpayer proves a business connection.

Example 4. Operation of and costs related to an entertainment facility:   F  paid $5,000 to lease hunting rights to entertain current and prospective business clients. He kept logs establishing 100% business use of the lease. He also incurred $1,000 for food, drink, equipment, and supplies used during hunting expeditions. Substantial business discussions occurred during these expeditions.

The $5,000 lease fee is a nondeductible entertainment facility cost. However, the $1,000 of other expenses is not affected by the entertainment facility rules; rather, their treatment would be determined by the general rules of Sec. 274 governing meal expenses (ie, related to the business and properly substantiated).

Planning around the 50% disallowance rule for meals

Only 50% of otherwise allowable meal expenses are deductible as business expenses (Sec. 274(n)(1)). This includes business meals while attending professional seminars and while traveling away from home. If a hotel or other lodging establishment includes meals in its room charge, a reasonable allocation must be made to determine the portion of the expenditure subject to the 50% disallowance (Notice 87-23).

Taxes and tips related to meals are included in the amount that is subject to the 50% limit, as are expenses for cover charges to clubs, room rental for a dinner or cocktail party, and amounts paid for parking at a restaurant. However, transportation costs incurred in getting to and from the meal are not subject to the 50% disallowance. When a self-employed taxpayer uses a per diem method for travel expenses, the federal meal and incidental expense (M&IE) rate is treated as an expense for food and beverages and is therefore subject to the 50% disallowance.

Example 5. Costs subject to 50% disallowance:   F  meets with a business associate at a local restaurant for dinner. The cab fare to the restaurant and back is $25. The meal costs $100, including $18 for tips and tax. The cab fare is fully deductible. Only 50% of the $100 meal cost can be deducted.

Example 6. Disallowance of meal expenses incurred while traveling:   F  travels extensively. During the year,  F  incurred $3,000 in meal expenses while traveling on business. He can deduct $1,500 (50% of $3,000) for meals on his Schedule C,  Profit or Loss From Business (Sole Proprietorship).

However, certain meal expenses are exempt from the 50% disallowance rules (see Sec. 274(n)).

Amounts included in employee’s income:  The employer gets a 100% deduction if meal expense reimbursements or allowances paid for or to an employee under a nonaccountable plan are treated as compensation to the employee (Regs. Sec. 1.274-12(c)(2)(i)(A)). Of course, the employer must then pay Federal Insurance Contributions Act (FICA) taxes, and the income is subject to normal withholding. This rule basically allows employers to shift the 50% disallowance to employees. However, for 2018–2025, the employee will suffer a 100% disallowance because miscellaneous itemized deductions, including employee business expenses, are disallowed during this period (Sec. 67(g)).

Conversely, if the employee adequately accounts for the expenses and the employer properly reimburses the expenses under an accountable plan arrangement, the employer is subject to the 50% limitation on its reimbursement (Regs. Sec. 1.274-12(c)(2)(ii)). The employee has nothing to report because the reimbursement offsets the expenses incurred.

Similarly, meal reimbursements and allowances that are included in the taxable income of independent contractors (via reporting on Form 1099-NEC,  Nonemployee Compensation ) are also 100% deductible by the service recipient (Regs. Sec. 1.274-12(c)(2)(ii)(C)).

Nonemployee prizes and awards:  The taxpayer gets a 100% deduction if expenses for meals and entertainment are includible in gross income of a nonemployee recipient as a prize or award, when a Form 1099 is issued to the recipient. No 50% disallowance applies at any level. For example, as a sales promotion, a sole proprietor holds a drawing and awards to a customer a $750 dinner cruise for 10 people. If a Form 1099 is properly issued, the proprietor gets a 100% deduction (Regs. Sec. 1.274-12(c)(2)(i)(B)).

Amounts billed to clients:  When services are provided as an independent contractor, the service provider can deduct 100% of job-related meal expenses by billing the client separately for these costs. The client is then subject to the 50% disallowance rule for payments to the service provider representing reimbursements for such expenses (Regs. Sec. 1.274-12(c)(2)(ii)(C)).

If separate billing does not occur, the meal reimbursements and allowances are included in the income of the service provider and are 100% deductible by the client. Here, the 50% disallowance rule applies to the service provider.

Example 7. Determining which taxpayer is subject to 50% disallowance rule for reimbursed expenses:  An advertising agency separately accounts and bills for meal and entertainment expenses and is reimbursed by the clients to whom the expenses relate. The ad agency is not subject to the 50% limitation; rather, the clients to whom the expenses are billed must apply the limitation.

Variation:  Assume instead that the ad agency incurs expenses for meals and entertainment in the course of providing services to its clients but does not separately account for the expenses and seek reimbursement from its clients. (Rather, these costs are combined with service fees on billing statements presented to clients.) The ad agency itself is subject to the 50% limitation for meals and 100% limitation for entertainment expenses.

For the benefit of employees:  If an employer sponsors recreational, social, or entertainment gatherings primarily for the benefit of rank-and-file (rather than highly compensated) employees, the 50% disallowance rule does not apply to related meal expenses. Examples include company outings (such as a summer picnic) and banquets or other gatherings (such as an annual Christmas party) for employees and their guests (Regs. Sec. 1.274-12(c)(2) (iii)). Free food and beverages provided in a break room available to all employees do not qualify and will be subject to the 50% disallowance rule (Regs. Sec. 1.274-12(c)(2)(iii)(B)(3)).

Advertising or goodwill:  Expenses incurred for meals made available to the general public are 100% deductible (Regs. Sec. 1.274-12(c)(2)(iv)). This exception also applies to meals provided to potential customers as part of a sales presentation (IRS Letter Ruling 9414040). The exception does not apply when the meals and entertainment are provided on an invitation-only basis and not otherwise available to the general public ( Churchill Downs,   Inc.,  115 T.C. 279 (2000)).

De minimis   fringe benefits:  When meal or beverage items provided to employees qualify as tax-free  de minimis  fringe benefits under Sec. 132(e), the employer can deduct 100% of the costs, even though the benefits are excluded from the employees’ taxable income. The IRS has ruled that the taxpayer must incur an “unreasonable or administratively impracticable” hindrance to account for the cost of meals for the value of the provided meals to be considered  de minimis  (Technical Advice Memorandum 200030001).

The 50% limitation applies to the expenses of an employer-operated eating facility described in Sec. 132(e)(2), including any expenses of providing food and beverages to employees in the facility. The limitation also applies to any expenses for meals furnished on the employer’s premises for the convenience of an employer under Sec. 119(a) (Sec. 274(n)(1)). After 2025, these expenses will be entirely disallowed (Sec. 274(o)).

Contributor

Patrick L. Young,  CPA, is an executive editor with Thomson Reuters Checkpoint. For more information about this column, contact  [email protected] . This case study has been adapted from  Checkpoint Tax Planning and Advisory Guide ’s Closely Held C Corporations topic. Published by Thomson Reuters, Carrollton, Texas, 2022 (800-431-9025;  tax.thomsonreuters.com ).

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What is T&E expenses?: Travel & Expenses Management

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In business terms, T&E stands for Travel and Expenses or Travel and Entertainment. Sometimes, especially in the service industry, T&E can stand for Time and Expense, referring to the time invested in a project and expenses incurred to execute the project successfully.

For running a business, many times employees are required to go to different destinations to meet new clients and identify new markets with a view to expanding the business.

What is Travel and Expenses (T&E)?

In a corporate context, T&E (or T and E) refers to Travel and Expenses or Travel and Entertainment . This encompasses the c osts incurred by a business when employees travel away from their usual base for work purposes . In the professional services sector, T&E can also denote Time and Expense, indicating the time spent on a project recorded for utilization records and billing purposes. Understanding T&E is vital for effective financial management and budgeting in organizations.

When employees leave their operating base for these purposes, the organization must pay for their travel and related expenditures. This expenditure is categorized as T&E, which is travel and expenses.

Travel and spending are one of the most significant expenses for many businesses.

According to the Global Business Travel Association, business travel spending grew globally to $305 billion in 2018 from $292 billion in 2017

Profitability is significantly impacted by efficient budget and spending management . The overall profit is decreased if employees spend too much on lodging, transportation, food, and beverages. However, strict expenditure limitations may prevent employees from attending important meetings and activities.

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What are the components of Travel & Expenses?

Travel between source and destination.

This covers the price of any required travel by air, rail, road, or river to conduct business away from home for an extended period of time. Only out-of-pocket payments may be written off, not the value of frequent flier miles or other rewards programs.

Travel at destination

This includes the use of a taxi, shuttle, limousine, or ride-sharing service to get from the airport to your hotel and a place of business. Even if you work in a different city within the same metropolitan area as your tax home or office, the expense of your usual commute to and from those locations is not deductible.

Food expenses

Seasonal variations in standard rates cause them to vary from month to month. They include a meal allowance (breakfast, lunch, and supper) as well as incidental costs (M&IE), such as tips or room service fees.

Communication and Other Expenses

This covers expenses on calls, internet, and any other expense incurred like laundry, gifts given to clients, etc

Entertainment

This covers the price of taking clients or staff members on business trips and their families to sporting events, clubs, or activities that resemble vacations. Additionally, "lavish or costly" meals that aren't quantified by a specific cash amount are covered by the entertainment exemption. To assist employees in navigating the murky waters around entertainment and meals, your travel cost policy should offer direction or impose spending caps.

61% of business travelers report that their current travel schedules are falling short of their expectations, and 82% of business travelers report their company is returning to pre-pandemic levels but with a “more travel on fewer shoulders” approach

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What are the stages in Travel and Expense reimbursement?

Approval & submission of travel request.

The employee gives his or her manager the travel request. The request includes information such as The reason for the call, the recruiting, the visit to the distributor, etc. dates of travel (start and end dates), the locations of the source and the destination, the mode of transportation, and the cost center to which the expense will be paid. The employee then sends the request to his/her manager who reviews it and approves/rejects it and asks for modifications to it if needed.

Reservations by Travel Department

The employee's reservations (for travel, lodging, and other services) are made by the travel desk. In certain businesses, it is the employees' obligation to make the reservation.

The travel department books the flights and provides the traveling employee with confirmation of the details of the tickets, accommodation, etc.

Expense Request and Approval

Once the employee reaches the destination, he will incur expenses. For this purpose, he will raise appropriate requests. The employee asks his or her manager for permission before incurring expenses. This is often done by filling out a paper or online form with the information needed to incur the expense (such as the item, the need for it, the anticipated cost, the cost center to which it will be charged, etc.). After reviewing the expense request, the manager decides whether to accept it or not. If the request is approved, the employee goes ahead with the expense and if denied, the employee won't be able to incur that expense on behalf of the business.

T & E Report Submission

Once the employee returns from the trip, they submit their T&E report. Most businesses have rules on how soon after a trip is over a claim may be lodged. This policy makes sure that employees submit their expense reports on time so that management can view expenses as soon as possible.

The employee includes the trip request number against which the expense was incurred in the expense report, and the matter is then closed. The T&E desk validates the claim that was submitted. From the standpoint of outsourcing, this step is the most crucial and necessitates a full understanding of the client's payment procedures.

Verification and Settlement

Once the team receives the documents, they start sorting, scanning, and uploading them into the document management system. These papers are indexed in the document management system and made available to the team offering the verification services for further processing. The verification team confirms that the trip expense has legitimate authorization from a manager or authorized employee.

The verification team then examines the expense report to see if it is accompanied by genuine receipts and bills. Employees are requested to submit claims again if any receipts are missing, along with the missing receipts. The claim is next examined to see if it adheres to the company's T&E policy in terms of eligibility requirements and spending limits. The verification team authorizes the claim for payment if all the conditions are examined and determined to be in compliance. The transaction is completed, and the employee gets paid.

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What is the importance of T & E?

T&E is after payroll , the second-most challenging operating expense, according to a Forrester Research poll.

8 to 12% of the average organization's total budget is spent on business-related travel and leisure.

This means that you should particularly pay attention to your T&E expenses if you're thinking about cutting costs or promoting more effective business procedures.

Most businesses believe that their spending is within reason and that there isn't much they can do to reduce their expenses. Such presumptions may not be accurate in reality, and it can be challenging to overcome them. They are only left with open eyes about how much more they spend and how much money employees might be spending outside of policy once they know their actual spending (after employing a competent T&E system).

When interpreted correctly, this information makes it possible to control spending patterns, monitor fraudulent spending, find duplicate invoices, etc. It reduces travel and expenses by more than 20%.

Business travelers can also benefit from a better T&E process. Employees who travel for work-related purposes or make out-of-pocket purchases for the company are concerned about how quickly they will be reimbursed. A smart system for managing travel and expenses can streamline the entire process. Shortening the entire approval time allows for speedy reimbursement and provides adequate visibility into the cash flow. It makes it simple to provide receipts and, if there are any infractions, it flags them.

When employees are certain that their prompt reporting will result in prompt reimbursement from the company, they will pay for unforeseen T&E expenses out of their own pockets without any fear or reluctance

Every year, underreported mileage causes organizations in the United States $5.4 billion dollars in losses

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Travel & Expense Report

A travel and expense report includes a breakdown of all the costs related to a certain business trip. The expense reporting form and all the paper receipts are kept together in a file. To receive timely reimbursements, employees must submit these expenses to the finance department or the reporting manager within a certain amount of time. Businesses typically have a T&E policy in place that spells out what should and shouldn't be done with business costs. It covers the spending caps for each category of expense as well as what happens when they are exceeded.

The company frequently needs its employees to travel, but managing cost reports is difficult. Paper receipts are occasionally trustworthy but are prone to lose and damage while traveling. Even after all the receipts have been sent, sorting and processing them takes time. Both the workers who are waiting for compensation and the department trying to keep track of expenditure reports find that frustrating.

To request compensation for out-of-pocket expenses, employers need employees to submit T&E expense reports. T&E expense reports frequently include details regarding each expense item, including:

• The date on which the cost was incurred.
• Where the cost was incurred, for example, at a restaurant or at a service center.
• The client or business for whom the item was bought.
• The item's price.
• Additional comments if required. For example, if it was a dinner, “ Dinner with Tom from ABC Networks for discussion of the proposal”

Depending on the kind of expense, these fields change. For instance, employees may fail to include the client/project or account number on T&E reports when asking for reimbursement for home internet access.

Why are T&E reports important?

Many employees dislike filing expense reports, but there are valid reasons to resist the urge to put them off. It may be a tall order to find the appropriate receipts or remember the specifics of a business trip weeks or months after the fact, so submitting expense reports at the very end of the reporting period can result in serious issues. After a trip, you should rapidly complete and submit expenditure reports to help prevent mistakes and omissions.

Employees who travel or host clients can get reimbursed for costs they personally incur by using expense reports. Salespeople, executives, and other employees who incur these costs typically have to submit expense reports to their managers for approval at the end of each trip or by the end of the month in which the charge was incurred. Employees may also utilize corporate credit cards from some businesses to pay for authorized T&E costs.

The report must include in detail the taxpayer's professional connection to any person who was fed or entertained if the expense was for meals or entertainment.

Most firms ask employees to submit copies of actual receipts rather than credit card statements when expense reports are made for T&E goods that exceed a predetermined limit (usually $25 or $50). Some frequent examples of expenses that may be eligible for reimbursement are airfare, hotel, rental cars, mileage on personal vehicles, gas and tolls, taxis and ride-sharing services, business phone calls, wi-fi access fees, tips, and meals.

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How do Organizations spend their T & E budgets?

In all industries, travel and lodging are still the top two expense categories. Unsurprisingly, compared to the corporate sector, government and nonprofit organizations spend more on travel and lodging (66%) and less on dining and entertainment (a combined 10%).

Mid-sized businesses spend the least amount (26%) on airfare as compared to larger firms, probably because their business operations are more likely to be local and involve fewer travels.

Additionally, the middle market has the greatest non-travel expenditure percentage (17%) , which may mean that they mostly use the corporate card for business-related expenses rather than a separate purchase card.

Since there are multiple sources of information needed to understand what a firm is purchasing and from whom, gathering travel data presents its own set of special difficulties. The general ledger , any cost management software, travel agency reports, and corporate credit card reporting are typical sources of travel information.

The card-to-employee ratio varies between 19.6% (for large businesses) to 26.9% (for the medium market) . The mid-sized sector reported a card-to-employee ratio of 18.1% in 2008. The Fortune 500 reports an average monthly card fee of $813, while mid-sized businesses charge an average of $1,290.

The greater purchasing power of large enterprises and the fact that mid-sized businesses utilize the corporate card for a sizeable portion of non-travel-related purchases could both be contributing causes to the discrepancy.

Even if spending restrictions are being imposed less frequently, they still amount to about $4,000 on average for the larger organizations, which may have grown more reliant on other control methods. The average cap for large and mid-sized businesses is $2,400.

All corporate sectors appear to prioritize training and communication.

The cost of a hotel stay is typically the most expensive part of an employee's vacation due to recent large increases in hotel rates. However, spending on hotels frequently only has one line item. Folio data is being used by more and more third-party providers and businesses to present a more thorough picture of hotel spending.

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Drawbacks of Manual Travel & Expense management

Lack of transparency.

Businesses that record and forecast corporate spending manually or with typical expense management software have a difficult time tracking and analyzing spending data at the end of the month.

Limited transparency of employee expenses and lack of spending insights is a prevalent concern among their finance team.

This inadequacy of data leads to inaccurate calculations and poor financial management, planning, and forecasting. Senior management also tends to receive falsified or heavily deviating reports which leads to them making poor choices that they are unable to recognize or change.

Employees frequently "cheat" while filing expense reports. For instance, a dishonest employee might inflate expenses; they might also alter the figures on a receipt, submit several requests for reimbursement, or think of other ways to draw out money from the company. One of the most popular strategies is misrepresenting expenses by using legitimate receipts for non-business-related activities.

Some businesses could make "informed guesstimates" about monthly spending since they had a strong handle on travel trends. However, COVID-19 upset everything.

According to Dataconomy , the pandemic upended categories and brought T & E spending to a grinding halt. 51 % of expenditures in March 2020 were on lodging. That fell to 20% in just one month, a 31 % decrease. Spending on corporate services, meanwhile, increased from 10% to 27%.

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Employee Dissatisfaction

When waiting for their T&E claim to be processed, 32% of employees think they were "left short," according to a survey.

Even when employees do submit cost claims, the reimbursement process doesn't always proceed as swiftly as is ideal. For 10% of workers, the procedure may take more than a month. Employees' perception of their employer suffers while they are struggling financially and coping with a difficult claims process.

When someone takes advantage of them, nobody likes them. Resentment, lack of enthusiasm, and abandoning the firm may result from this. They might even suggest to their network members not to work for your business. That kind of reputation won't benefit the organization in any way.

According to one-third of the employees questioned, one of the main reasons for unclaimed expenses is that filing an expense report takes too much time and frustration.

Despite the fact that it could appear that unclaimed expenses would save your business money, you don't want to be one of the businesses with subpar travel and expense (T&E) procedures that irritate workers.

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Inefficient and time-consuming

A typical reimbursement procedure would look like this:

• An employee will submit the report and receipts after travel, making sure that all compliance criteria are satisfied.
• Managers who have been identified as authorizing evaluate the expenses. These invoices might be rejected, questioned further, or sent to the finance department for processing.
• These travel reports are compiled by finance staff, who manually identify claims.
• The payroll staff reviews the spending reports and makes any necessary reimbursements.
• The finance staff would return the expenses to the employee for any policy irregularities so that they may be corrected

The method must be repeated many times if there is any inconsistency or ambiguity in any of the steps. The process takes a very long time because of this.

Thus, processing claims can take time away from employees' working hours and productivity, leaving them with less time to complete valuable tasks for the company.

The cost of processing business travel expenditure reimbursements is frequently considerable, including the salaries of finance teams in charge of expense management and the resources needed for reporting. Don't just consider the one-time (for on-premises) or monthly (for SaaS/cloud) software cost when assessing expense management. The reporting process is further delayed and costlier when different systems are not able to "speak" to one another. Additionally, it is a waste of time for employees to search online for the greatest hotel and flight rates.

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Difficulty in tracking Receipts

Since receipts serve as proof, businesses typically require employees to include them with every expense report claim. It is essential for maintaining compliance and assisting finance teams during audits. Receipts, however, come in a variety of formats (paper, e-receipts, etc.), which presents difficulties like:

Employees find it tedious to manage several receipts, particularly when there is continuing T&E This often happens in the case of customer-facing teams. It puts more of a strain on finance teams to gather, confirm, and record them. In addition to this, many firms employ conventional approaches and reimbursement templates that may not have changed to meet the evolving demands of the sector. An unorganized expense workflow leads to confusion, lack of compliance, numerous rejections, and a delay in payment settlement.

Employees need a simple way to submit receipts with their expenditure reports so that the T&E management process runs smoothly.

Increased Spending

T&E management is considerably more difficult for big businesses. The accounting and finance teams devote more time and effort as the amount of expenditures rises, which results in greater processing costs. Organizations that are attempting to save wasteful spending by limiting necessary trips face challenges as a result of this.

Companies that don't continuously monitor T&E spending trends miss out on chances to improve policy decisions and take prompt action to stop potentially fraudulent or out-of-policy behavior.

The spreadsheet method to T&E management won't catch, for instance, that an employee who typically spends $500 per month visiting clients at their locations suddenly spends $750 without authorization or justification.

However, businesses that use the aforesaid machine learning in their travel and expenditure software are able to take early action. Anomalies, like that $250 monthly spending increase, that can point to fraud or human mistakes can be detected by a well-configured ML system.

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According to a PayStream Advisors survey , businesses spend about $20.18 processing each expenditure report.

Multiply this by the number of workers that travel for work and the total number of reports submitted each month. You are aware that this entails significant wealth. Large sums of money are spent on useless expenses that could have been stopped at the source.

Nearly half of the organizations ( 46% ) do not track the cost to process expense reports while 43% of companies are still managing expense reporting manually.

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Selecting the right T & E Automation software

63% of businesses already have their expense control processes (partially) automated, according to Pay Stream Advisors (2017)

This number will only increase because improving your travel and expense management (TEM) could significantly affect the financial results of your company. Thus, it is necessary to automate the T&E process using accounting automation software.

However, it's crucial to make sure you pick the best T&E solution and use it properly if you want to automate your cost management effectively. To minimize the time-traveling costs incurred by employees, approvers, and accounting or finance departments and to maximize your return on investment, high employee adoption rates are essential.

Various travel and expense management tools provide various functionalities. While some online solutions for managing expenses could be free, they only have extremely rudimentary features.

On the other hand, top-notch solutions provide features like cutting-edge OCR technology to "read" receipts and automatically pre-populate expense lines, calculations for mileage, adherence to local laws, the option to go completely paperless, and a mobile and desktop app, and offline mode.

IDC expects the worldwide Travel &Expense management software market to reach $2.7 billion by 2022 and have a compound annual growth rate of 8.7%

ROI of Travel & Expense Management Software

Setting a maximum budget for your expense management tool will be aided by making a rough estimate of prospective cost savings. The majority of businesses find that reducing the number of hours that traveling staff and the finance and accounting division must spend approving and monitoring expenses results in significant cost savings.

The precise amount of your potential cost savings and ROI will rely on your company's spending habits, workflow procedures, the number of traveling employees, business income, the employee adoption rate of the TEM tool, and the level of automation your preferred TEM product will provide.

The typical pay-back period for the most widely used TEM solutions is between six and seventeen months (G2Crowd, 2018)

Most of Nanonets clients see an ROI payback period of 3 months and 3-5X ROI. See how you can do it too.

Ease of Use

The adoption of automated expense management software is not a typical project where the vendor handles the majority of the work. In order to tailor the solution to your company's travel policies and reporting requirements, the TEM provider may help you with the system integration process. Post that however, it is the organization’s responsibility to make the best out of it. Thus it must be ensured that the software is not too complicated to use as that would further delay processes.

Additionally, the success of automating your spending management depends on the confidence and satisfaction of key figures in your accounting and finance department with the chosen solution. Thus, it is crucial to not only comprehend their needs but also actively involve them in the project from beginning to end.

“Ease of use” was cited by 59% of respondents as the most important factor when selecting a cloud-based expense system

Support and Security

Another crucial aspect while selecting the T&E software is that it should support interaction with other relevant company systems, such as accounts payable, human resources, human capital management, and customer relationship management.

Data and processes will flow between systems automatically if the T&E software supports various languages, delivers consistent processes globally, and adjusts to the specific cultural and regulatory constraints in each market. Additionally, the right solutions should give you access to a diverse partner ecosystem so you can integrate complementary enterprise apps into your T&E solution portfolio.

Data transfer across systems can be accelerated with the aid of APIs with prebuilt integrations. The most recent security procedures and fraud pattern-detection tools must be included in T&E systems in order to protect against risks to data security. You can stop both internal and external data threats with the correct tools.

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Benefits of Automating T&E

Migrating T&E processes from manual to automated can go a long way in improving the overall performance of an organization. Businesses may increase productivity and keep a tighter watch on employee business expenses, which are the second-largest controllable cost for the organization.

Less Paperwork

Intelligent automation gets rid of paperwork. With an expenditure management system in place, staff members can take photos of their receipts with their cellphones and submit them via a mobile app to the expense platform. They can then swiftly put everything together into an expenditure report and submit it right to the finance division.

This reduces the hassle of maintaining physical copies of multiple receipts. Even if a mistake is made, the finance division can identify where it happened, which is challenging to do with paper records.

The finance team can conveniently go over all the documentation to check everything and authorize the expense reports. This greatly reduces effort and the potential for error while also speeding up the process. The finance team may make mistakes while moving data from the spreadsheet to the accounting system even if your personnel provide flawless expense reports.

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Accurate Budgeting

T&E management systems provide Integrated spend reports that give useful insights, such as helping you choose a trip companion based on what proportion of your T&E money is spent on travel, lodging, and entertainment.

With the help of this data, your organization can come up with more accurate budgeting and a better distribution of funds to areas where they will have a significant impact.

Reduced time and costs

You can set travel pre-approval with a finance automation tool customized to business needs to make sure that employees are taking advantage of the best airfare deals as they become available. No more missing out on a bargain because a boss is too preoccupied to approve it!

Travelers in businesses with automated expense reporting systems use 33% less time on average to prepare reports than those in other businesses with best practices.

Small to midsize business (1-999 employees) users saved an average estimated $49K annually by implementing an automated travel and expense solution, and they saw positive ROI within eight months of implementation. (Source: Analysys Mason 2022 )

Faster Turnaround Time

Nothing is worse than rushing to turn in a report only to have to wait months for reimbursement after incurring expenses, especially if the employee paid out of pocket for an expensive product or service. The employee may become frustrated as a result, which may have an adverse effect on morale and production.

However, businesses may automate the approval and reimbursement process with efficient expenditure management procedures and tools.

Utilizing an automated expense management program expedites the approval and reimbursement processes. The manual procedure results in delayed reimbursement because finance managers and accountants have to spend a lot of time examining each expense report and passing assignments from one approver to another.

Organizations that automate their spend management tend to approve expense reports 4.9 days faster, spend less time handling receipts, and can approve expense reports on the go, all of which can lead to higher employee engagement and satisfaction, according to an Aberdeen report .

Better Tracking of Expenses

On average manual expense, processing spending is 3X times more in contrast to what can be achieved by a fully automated travel and expense system. Additionally, it can save 70% of their time.

Keeping track of all company spending-related documentation, such as reports, receipts, open invoices , and bills, is one of the main issues in manual expense reporting. These records are necessary for audits as well as reimbursement purposes. However, managing all the paperwork easily can be difficult when using manual expense management

Without misplacing or losing their receipts, employees can handle them. With the help of dashboards, finance teams may examine all corporate business expenses. All employee business reports are also accessible to approvers and the finance teams at any time and from any device. All employee spending reports can be tracked by the finance department for status and development. Every stakeholder involved has access to information about the expense reporting process.

Increased Compliance

According to studies, one out of every five expense reports includes a trip exemption. Some businesses only comply with regulations to a degree of 60%, which leads to wasteful spending on unauthorized charges.

By increasing adherence to and consistently enforcing corporate policy, travel managers might anticipate savings of up to 10%. It can be challenging to enforce expense standards without formal cost management software in place, which makes maintaining compliance all but impossible.

With an automated system, compliance and adherence to policies can be greatly improved. The entire procedure can be customized to comply with your company's travel policy. Employee expenses that go against the travel rules will be immediately reported to approvers as soon as they happen. This enables your team to quickly approve or reject expenditure claims in real time while checking for compliance.

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Best Practices for Travel and Expense Management

Clarify expense categories.

It is essential to identify what types of expenses are covered by the policy with a precise categorization. The organization must clearly define the categories. The document should go into detail about any additional guidelines that may apply to these expense categories, such as spending limits, the frequency with which a particular expense type may be incurred, and any exceptions that may need to be approved in order to meet regulatory compliance requirements. To avoid disagreement and discontent, it should also specify which expense categories are entirely or partially non-reimbursable.

The following are typical expense categories: air travel, ground travel, hotel, food, entertainment, etc. Having a distinct spending type for each in your T&E system can help you distinguish between meals for employees and meals for business. Establish rules for what is permitted for internal travel and meals versus outside entertainment for business.

Set Limits and Constraints

If possible, specify a daily spending cap for food, housing, entertainment, etc.

Set standards for car size, insurance protection, and fuelling practices. Consider whether you should pay the airline's baggage costs, trip insurance, and cancellation charges.

In addition to the monetary value, each worker can spend each transaction, but you can also assign each person a monthly allowance. This can also differ per employee and scope of authority. This restriction tool restricts the degree of danger the card poses to the company. Concerns from employers that a worker will incur extra costs may employ SIC blackouts.

Detailed policies and processes should be set before a procurement card programme is launched. Printed versions of these rules should be provided to all impacted workers. Set standards for car size, insurance protection, and fuelling practices. List a few recommended hotel chains or the lowest possible hotel rates per night.

Define a Time Frame for Travel and Expense Claims

A minimum and maximum time period must be defined for the submission and reimbursement of claims. This should contain the timelines for when an employee should submit an expense claim and when they should anticipate receiving reimbursement from your business.

Try to treat the workers fairly here. Since these are business expenses, you don't want your team members to lose money if they are late.

But you also want to encourage them to file their papers as soon as possible. A definite cutoff point might be the best option. The T&E policy document should specify in detail when travel requests should be made when bookings should be made when travelers should ask for an exemption, and when expenditure reports should be made.

If the business makes use of a sophisticated instrument for managing travel and expenses, the procedure should outline the steps a traveler should take from pre-trip approval to final payment. Additionally, it should describe the company's approver policy and how a traveler can choose their own approver.

Regularly Update the Travel & Expense Policy

Examine reports from your expense management system instead of just the T&E policy to find areas where you are spending more than you should. Perhaps there are ways to cut costs, such as creating a new site for booking trips or extending the permitted hotel list to incorporate accommodations from a budget chain.

At the very least once a year, update your expenditure policy. Not just because it is required, but also because using this strategy has other advantages:

"Reducing the amount you spend on suppliers is another reason to update your costs policy. Use any updates as a chance to specify which businesses should be used and try to reach an agreement for recurring business.

Looking to automate employee reimbursements? Try Nanonets. Trusted by 500+ enterprises and 30,000+ professionals. Rated 4.9 on G2 and Capterra. Give it a try, for free.

September 2022: The blog was originally published in July 2022 and was updated in September 2022.

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