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Travel & Entertainment Expenses Tax Deductible & Out of Control

November 9, 2012

It’s that time of the  year when we start organizing revenue and expense.  Expenses for business travel, meals, and entertainment (T&E Expenses) have to meet certain tests before they are deductible for taxes.  T & E expenses must be incurred in a trade or business; ordinary and necessary to the business; and serve a clear business purpose and be directly related to the active conduct of the business.  Business travel is fully deductible, where meals and entertainment are only partially deductible.  For meals to be deductible, company staff must be present and substantial and bona fide business discussion must take place directly before, during or after the meal.  Deductible T&E expenses must be supported with adequate record keeping.  The expense & business purpose should be documented along with amounts, dates, place, names of business or individuals involved plus receipts.  If in doubt, ask for assistance and clarification from your service provider.

So you have taken a look at T&E paid out.  You find they have increased more than inflation and exceed budget while company T&E Policies didn’t change.  T&E expense is necessary for many businesses but can be the most vulnerable to fraud and abuse.  Having a T&E Policy that clearly defines company reimbursed expenses is a start to controlling fraud and abuse.  However, in order to maintain control,  record keeping is critical from point of sale through review, approval, and audit.  Oversight and compliance begins with the employee and ends with the approval and audit process to ensure every employee adheres to policies and procedures.  Companies spend time and resources manually reviewing, approving, and tracking T&E expenditures and want to be sure oversight is working not only to prevent fraud and abuse but to control costs.  Consider moving from a manual system to an automated system.  Automated systems reduce staff time, speed up review and reimbursement, provide a system of checks and balances, and allow for better forecasting and planning.  Mobile technology can play an important role.  If you are concerned about rising T&E costs, it is a good time to revisit your policies and your procedures and processes for oversight and compliance.

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