Employees are generally required to substantiate their business expenses for travel, entertainment, business gifts, and the use of listed property (including cars) by adequate records as to amount, time, place, and business purpose. In the cases of entertainment and gifts, the business relationship of the expense must also be substantiated. The taxpayer does not always have to have a receipt for substantiation; see chart.
Lodging: Must have a receipt for ALL amounts
Travel: Receipt required for amounts of $75 or more
Entertainment: Receipt required for amounts of $75 or more
Meals: Receipt required for amounts of $75 or more
Gifts: Receipt required for amounts of $75 or more
Vehicles: Receipt required for amounts of $75 or more
This means that for the expenses listed above, (other than lodging expenses) you still need to maintain the information listed above (amount, time, place, business purpose, etc.) but only need to retain a receipt if the expense is over $74. Therefore, on your expense records, as long as you have the proper notations required a receipt is not required as documentary evidence if the expense is under $75.
EMPLOYEE BUSINESS EXPENSES: Are you operating the right kind of plan?
Are expense reimbursements to be included in the employee’s income? This depends on what type of plan the employer uses. Basically, expenses reimbursed under an accountable plan are not to be included in the employee’s income, and no deduction may be claimed on the employee’s income tax return. Reimbursements received under a non-accountable employer plan must be included in the employee’s gross income, but the employee may deduct them on their personal income tax return, if proper substantiation is maintained by the employee.
Chart:
The accountable plan is more advantageous for both the employee and employer from a tax savings perspective, but it does result in more administrative work for both the employer processing expense reports, and the employee for generating the substantiation required. However, if tax savings is your goal, the accountable plan is the only way to go!
Feel free to contact us at 714.672.0022 with any questions or to schedule a complimentary strategy session for expert advice. Here at LSL, our main priority is to help you succeed.
This article submitted by Susan F Matz, CPA, Tax Partner and David Hale, CPA, Retired Tax Partner with Lance, Soll & Lunghard, LLP
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