A Shortcut to Business Travel Deductions
Jun 21, 2024Today’s episode, “A Shortcut to Business Travel Deductions,” dives into the intricacies of managing and deducting business travel expenses with a focus on per diem rates.
As every entrepreneur knows, business travel can present unique challenges. Whether you’re a solo entrepreneur or managing a team, keeping track of every receipt, expense, and tip can be overwhelming. Shannon, who just returned from her own business trip, knows firsthand the hassles involved—from Lyft receipts to meals and incidental costs. This episode is packed with valuable tips to help streamline this process.
Shannon starts by addressing the reality of business travel's sometimes chaotic nature. She emphasizes the importance of maintaining an organized system to track all business-related expenses. This includes keeping detailed records of receipts, understanding the business purpose of each trip, and having a robust system—both physical and digital—to manage documents. One critical piece of advice Shannon shares is the value of meticulous documentation. This is particularly essential in case of discrepancies or disputes. For example, if a charge from a hotel needs to be questioned, having original documentation and receipts can save time and hassle.
Shannon introduces the concept of per diem rates—a method that can vastly simplify managing travel expenses, particularly for businesses with multiple traveling employees. Per diem rates are fixed amounts of money provided by an employer to cover daily travel expenses, including lodging, meals, and incidentals. This approach, regulated by the U.S. General Services Administration (GSA), helps standardize travel expenses and reduces the administrative burden of needing to track every individual expense. The per diem rate is geographically sensitive. Shannon guides listeners to the GSA website, GSA.gov, where they can find the specific per diem rates for particular states and regions. She underscores the necessity of checking the current rates as they can change based on cost of living adjustments.
In practical terms, Shannon explains that per diem rates simplify cash management and make it easier to budget for business trips. With a standard rate, companies can predict expenses more efficiently and avoid unexpected surges in travel costs. This proactive approach is beneficial for both the employer and the employee. Shannon addresses multiple strategies for managing per diem payments: upfront payment, which she advises caution with, and reimbursement, which she finds safer. Reimbursing employees post-trip ensures that funds are allocated only for actual travel, reducing the risk of misplaced funds.
It’s essential to stay within federal limits to avoid additional tax burdens. If payments exceed the federally allowed per diem amount, the excess becomes taxable income to employees. Shannon suggests that enforcing per diem rates can help eliminate the need for extensive expense reports, thus streamlining the process immensely. Drawing from her experience, Shannon shares that setting a per diem encourages responsible spending. Employees might prioritize certain expenses over others based on their personal needs while traveling. For instance, employees in high-cost areas might choose to use a higher portion of their per diem on lodging and minimize other expenses.
Balancing flexibility and control is key. Business owners like Shannon must walk a fine line between giving employees the latitude to manage their funds and maintaining oversight to ensure the expenses align with business objectives. Shannon emphasizes the importance of using tools like the GSA per diem tool that provide tailored information based on location and specific needs. By leveraging per diem rates, businesses can streamline their processes, simplify cash flow management, and ensure compliance with tax regulations.
In addition to her tips on travel expenses, Shannon invites listeners to explore her Small Business Starter Kit. This bundle provides valuable resources to help entrepreneurs manage the financial aspects of their businesses effectively, addressing legal compliance and financial management—key areas that often intimidate new business owners.
If you found this discussion illuminating and want to learn more, don’t forget to listen to the full episode and check the show notes for additional resources and links. By making smart use of per diem rates, even the most cumbersome business travel can be simplified, letting business owners and their teams focus more on growth and less on tracking expenses. Happy travels!
What you'll hear in this episode:
03:23 Employees choose necessary incidentals, not transportation costs.
07:11 Control spending on company credit card effectively.
If you like this episode, check out:
What They Never Tell You About Depreciation
How to Deduct Self-Employed Health Insurance Premiums
Should I Hire a Tax Strategist?
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The information contained in this podcast is intended for educational purposes only and is not individual tax advice. Please consult a qualified professional before implementing anything you learn.
