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Deducting the Costs of Lodging in Your Local Area

by
Jeffrey Mathews
on
4/12/2015
Deducting the Costs of Lodging in Your Local Area

When a business sends an employee out of town overnight, the costs incurred for lodging can be deducted as long as they location is outside of the employee's "tax home," which is defined as the general location of their main place of doing business.

Though the tax home does not necessarily have to be the place where the employee actually lives, the deduction does imply travel away from the office, and this can be a problem when the employee is required to participate in meetings, training sessions or conferences in the local area round their tax home.

These events can extend late into the evening and then start up again early the next day, making it prohibitive to return to their home. In recognition of this type of scenario, the Internal Revenue Service has submitted a proposal for a regulation that allows this type of non-away-from-home lodging expense to be deducted as a business expense. Though only a proposal at this point, the IRS has advised that taxpayers can rely upon this new regulation when paying their 2014 taxes, which will allow employers to deduct the expenses as business expenses, and employees to deduct them as tax-free working condition fringe benefits or accountable-plan reimbursements. In order to qualify as an ordinary and necessary business expense, the local lodging expenses must meet the following requirements:

• The lodging expense must have been needed in order for the employee to fully be engaged in a conference, training activity, meeting or other bona fide business activity.

• The expense for non-away-from-home lodging cannot exceed five calendar days per quarter. It also cannot come up more than once per quarter.

• Employees must be required by their employer to attend the event.

• The expense cannot be for a lodging that is considered extravagant or lavish, and it must not provide a significant level of recreation, personal pleasure or other benefit.

The deduction can be taken in a few different ways. If a company decides to hold a training session at a conference center or hotel that is located within the locale of its main office and requires employees to attend the session and stay overnight, the company can pay the hotel directly. This then becomes a working condition fringe benefit that can be deducted as an ordinary and necessary business expense, even for those employees who live in the local area and would not be classified as being on a travel status. If the employee pays for the expense out of pocket and is reimbursed by their employer, the company can deduct the expense as an ordinary and necessary expense that is tax free for the employee as well. In the case of consultants who the company asks to attend the session and who stays in the hotel, the expense can be deducted or can be excluded if it is reimbursed by the company.

In order to qualify for this type of lodging expense, employees and companies are required to keep records, including information about the amount spent, the business purpose, the time and place of the expense and the actual receipts and bills. The federal per-diem rate for lodging is not allowable as substantiation.

If you are an employee or a consultant that is required to stay at non-away-from-home lodging, or an employer who requires this of your employees and need more information, contact Lake Charles CPA Jeff Mathews with your questions.

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Jeffrey Mathews

Jeffrey Mathews

Jeffrey B Mathews CPA, LLC provides Sulphur and Lake Charles accounting services for small to medium businesses. We serve companies throughout Louisiana, Texas and beyond with our virtual CFO and outsourced accounting plans. Look to us for help with your business accounting,payroll, and advisory services -- all for an affordable, fixed rate plan. Our satisfied clients includes companies across start-ups, medical, professional, technical, retail, and service industries. Our services will include helping you with cash flow management, budgeting, senior-level financial decision making, creating a tax strategy and reviewing your insurance policies in order to ensure that you are well-protected. With our meticulous attention to detail, we help to make sure that you understand what is happening with your accounting process and financial plan at every turn. We will make sure that our role as part-time chief financial officer translates into full-time confidence. Locations served include Lake Charles, Lafayette, and Baton Rouge from our CPA firm headquartered in Sulphur, La and other locations coming soon.

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