How to Handle Travel Costs More Easily

As you no doubt have discovered, travel expenses are an expensive headache for your company. Besides the cost of the actual travel, you also must cope with budgeting for travel costs that vary from destination to destination, the administrative headache of tracking actual expenditures from employee-maintained records, paying directly for the expenses or providing employees with advances or reimbursements, and keeping track of which expenses are completely deductible (lodging and round-trip travel) and those that yield only a 50- percent deduction (meals while the employee is on travel status).

Fortunately, we may be able to help you work out an alternative plan of action that puts strict limits on your travel expenses, encourages employees to be frugal, and involves a bare minimum of tax complications. In a nutshell, the plan involves paying employees a flat daily or per-diem rate for meals, incidental expenses (eg., laundry) and lodging costs while they are out-of-town on company business.

If employees pay more for their meals and lodging than the per-diem rate, they must personally pay for the difference; if they pay less than the per-diem, they pocket the difference. Along with costs, recordkeeping is cut, too, if the per-diem rate does not exceed the per-diem rate that the federal government pays its employees traveling to the same destination as your employees: All employees need to substantiate the travel expenses for tax purposes, and keep the per-diem payroll and income tax free, is to submit a written log of the time, place, and business purpose of the travel. Receipts and to-the-penny recordkeeping of actual travel expenses are not required. The company may deduct 100 percent of the lodging portion of the per-diem and 50 percent of the meals and incidental expenses portion.

To make the per-diem program work, you need a list of the federal government's per-diem reimbursement schedule, which varies year to year as well as locality to locality. We'll be glad to make this schedule available to you, as well as full details on this trouble-free reimbursement plan.

An even simpler version of the per-diem travel reimbursement program is available. Regardless of the actual government reimbursement rate for a particular locality within the lower 48 states, your company can reimburse travel to "low cost" travel destinations at one rate and use a higher rate for all "high cost" travel destinations (such as New York and Los Angeles). These so-called "high-low" rates are changed periodically; for 1995, the regular per-diem rate is $95 ($67 for lodging and $28 for meals and incidental expenses) and for "high cost" areas, it's $152 a day ($116 for lodging and $36 for meals and incidental expenses).

Call us and we'll make the current list of high-cost areas available to you, and work out a detailed guide that will help you rein in travel and recordkeeping costs without adversely affecting your deductions.