Business Travel Expenses and IRS Compliance: What Every Business Should Review This Year

Summer often means travel season, but for business owners, business travel happens year-round. It is also one of the most frequently reviewed expense categories during IRS examinations. While legitimate travel expenses are generally deductible, inadequate documentation can turn a valid deduction into a costly audit issue.

The good news is that with proper recordkeeping and a clear expense reimbursement policy, businesses can significantly reduce their audit risk.

Understanding the IRS Documentation Rules

The IRS requires taxpayers to substantiate business travel expenses by documenting:

• Who incurred the expense
• What was purchased
• When the expense occurred
• Where the business travel took place
• Why the expense was necessary for business purposes

Failing to maintain adequate records can result in deductions being disallowed, even when the expense itself was legitimate.

The $75 Receipt Rule

One area that often causes confusion is the IRS receipt requirement.

For most non-lodging travel expenses under $75, employees are generally not required to maintain receipts if they are reimbursed under an accountable plan. However, employees should still document:

• Date of the expense
• Location
• Business purpose
• Amount spent

It is important to understand that this rule does not eliminate the need for recordkeeping. The IRS still expects businesses to maintain sufficient evidence that the expense was business-related.

Lodging Expenses Are Different

The $75 rule does not apply to lodging expenses.

Hotel and lodging expenses generally require supporting documentation regardless of the amount. Businesses should ensure that employees retain hotel invoices and other lodging records unless reimbursement is made using an approved per diem method.

Using Per Diem Rates

Many businesses simplify travel expense reporting by using IRS-approved federal per diem rates.

When a business reimburses employees using an approved per diem method:

• Employees generally do not need to provide receipts for meals and incidental expenses.
• Employees must still document the dates, locations, and business purpose of the trip.
• Businesses must follow IRS and federal guidelines regarding eligible travel and reimbursement procedures.

Per diem rates are updated periodically and vary depending on the travel location and time period. Businesses should review current IRS guidance annually before implementing or updating a per diem policy.

Missing Receipts Can Be Costly

A common misconception is that expenses exceeding $75 without receipts can simply be reduced to a lower deductible amount.

Unfortunately, that is not how the IRS works.

If a business cannot adequately substantiate an expense that requires documentation, the IRS may disallow the deduction entirely. In many cases, an undocumented expense can become a zero-dollar deduction during an audit.

Review Your Travel Policy Annually

When was the last time your company reviewed its travel and expense reimbursement policy?

As IRS enforcement efforts continue to focus on business deductions and recordkeeping compliance, now is an excellent time to:

• Review travel reimbursement procedures
• Verify compliance with IRS accountable plan rules
• Update employee expense reporting requirements
• Train employees on proper documentation standards
• Evaluate whether a per diem approach makes sense for your business

Tax Planning Is a Year-Round Activity

Good recordkeeping is one of the simplest ways to reduce audit risk and protect valuable tax deductions.

At Cambaliza McGee LLP, we help business owners develop practical tax strategies, establish compliant expense policies, and maximize deductions while staying aligned with IRS requirements.

If you have questions about travel expenses, accountable plans, or business deductions, contact our team to schedule a consultation.