IRS Audits- Don’t Let Travel Deductions Be the Reason for An Audit!

Running a business is challenging, and the last thing you want to worry about is an IRS audit. One of the common triggers for audits in small businesses is the lack of proper documentation for travel expenses. As the saying goes, "Failing to plan is planning to fail." It's crucial to follow the guidelines established by the IRS to avoid any potential issues.

Good News

There is some good news from the IRS! There is a concept of "de minimis expenses" in tax law. The de minimis rule is a provision in tax law that allows for simplified treatment of small expenses.

So, how is this good news? Employees don't "technically" need receipts for non-lodging expenses under $75 that their employers reimburse. But before you celebrate, we are talking about the IRS, so there are stipulations.

Put simply:

• For business travel expenses under $75 (except lodging):
  • Employees don't need to keep receipts if their employer reimburses them.
  • The employee will still need to record basic information about when the expense occurred: when, where, why, and how much.
• Lodging expenses:
  • Employees always need receipts, no matter the cost.
  • Exception: No receipts are needed if your company pays the IRS-approved per-diem rate.
• Using per-diem rates:
  • Employees don't need to record the amounts spent.
  • Employees will still need to record basic information: when, where, and why they traveled.

Businesses need to note that an expense of more than $75 unaccompanied by a receipt does not automatically receive the minimum $74.99 deduction. The IRS will classify this expense as $0.

2024 Per Diem Rate

In 2024, the IRS per diem rate is $309 for travel to any high-cost locality and $214 for other locality within the continental United States. For meals and incidental expenses are $74 for travel to any high-cost locality and $64 for travel to any other locality within the continental United States. It is worth noting that specific time periods during the year can impact these rates. These numbers are updated frequently by the IRS, so contact our team for clarification.

Reviewing Travel Policy

When did you last review your travel expenses and recordkeeping procedures and policies? The best practice is to contact our team to verify that you comply with the IRS regulations. Once your policy has been updated, roll out these guidelines to your employees.

Tax planning is a year-round activity! Work with Cambaliza McGee LLP on your business deductions to keep the IRS from knocking on your door.