Are you substantiating your employee business expenses?

Now may be a good time to evaluate the expenses you incur as an employee in connection with your work. While your employer may be reimbursing you for some of these expenses, there may be others for which you are bearing the cost yet not utilizing the tax benefit. Through proper substantiation, it is possible that you may be able to obtain greater reimbursement from your employer. Alternatively, you may be entitled to deduct such expenses as miscellaneous itemized deductions.

In order to be reimbursed and/or deducted, trade or business expenses must be ordinary, necessary, and reasonable. They also must be properly substantiated.

Examples of qualifying expenses include business travel away from home; business use of your car; business meals and entertainment; use of your home; education; supplies; tools; and miscellaneous expenses.

You may also benefit from a review of the business expenses related to the use of your home. If you qualify for the home office deduction, you may be able to deduct part of your home's normal operating expenses, such as utilities and insurance. The tax-savings opportunities available to you are dependent not only on the type of work you do at home, but where in your home you perform it.

The rules for deducting these expenses, as well as substantiating your deduction, vary according to the type of expense involved. It is important to retain all records and receipts that document the time, place, and business purpose of each expense.

In most cases, the IRS does not require you to keep records in any special manner. Generally, you should keep any and all documents that may have an impact on your federal tax return. It's a good idea to have a designated place for tax documents and receipts.

Taxpayers should usually keep the following records supporting items on their tax returns for at least three years: bills; credit card and other receipts; invoices; mileage logs; canceled, imaged or substitute checks or any other proof of payment; and any other records to support deductions or credits you claim on your return.


Traveling for Business

Keeping track of business travel expenses, such as the costs of lodging, meals and incidental expenses, can be a very time-consuming task. In lieu of substantiating actual travel-related meal and lodging costs, the IRS provides optional per diem allowances, which employers and employees are deemed to have substantiated by adequate records or other sufficient evidence. The optional per diem allowances are intended to simplify recordkeeping and, depending upon your business, may indeed make the task of keeping track of business travel expenses less burdensome.


Per diem amounts

Under the per diem substantiation method, if a payer pays a per diem allowance in lieu of reimbursing actual expenses, the amount of the expenses deemed substantiated equals the lesser of the per diem allowance or the amount computed at the federal per diem rate for the locality of travel for the period that the employee is away from home.

Alternatively, the payer may use the high-low substantiation method for travel within CONUS. CONUS is the continental United States, exclusive of Alaska. Under this method, the amount of expenses that is deemed substantiated is the lesser of the per diem allowance or the federal per diem rate for the high- or low-cost locality, as applicable.

For travel on or after Oct. 1, 2016, the per diem rates are $282 for travel to any high-cost locality and $189 for travel to any other locality within CONUS. The amount of the $282 high rate and $189 low rate that is treated as paid for meals is $68 for travel to any high-cost locality and $57 for travel to any other locality within CONUS. The per diem rates, in lieu of the meal and incidental expenses only substantiation method, are $68 for travel to any high-cost locality and $57 for travel to any other locality within CONUS. The IRS updates the per diem amounts annually, so make sure you are using the correct rates to coincide with that date the expenses were incurred.


Incidental expenses

The term "incidental expenses" include fees and tips given to porters, baggage carriers, bellhops, hotel maids, stewards or stewardesses and others on ships, and hotel servants in foreign countries. In addition, "incidental expenses" include transportation between places of lodging or business and places where meals are taken, if suitable meals can be obtained at the temporary duty site; and the mailing cost associated with filing travel vouchers and payment of employer-sponsored charge card billings.

The IRS per diem rates are one method you may be able to use to substantiate business travel expenses, but no matter what method you use to substantiate your various employee business expenses, it's never a bad idea to document everything sooner rather than later.


James C. DeRidder, CPA, is a principal with Mengel, Metzger, Barr & Co. LLP. He can be reached at

Published: Mon, Jun 26, 2017