T&E is an abbreviation for a category of business expenses that generally includes travel and transportation, meals, entertainment, and gifts. For many companies, T&E represents a significant operational expense—and it doesn’t mean “trial and error.”
So, what does T&E mean?
T&E stands for “travel and expense” or “travel and entertainment.” Since the IRS made entertainment non-deductible in 2018, the second meaning may become less common as businesses update their travel expense policies to maximize IRS deductions.
“T” for travel (and tax deductible expenses)
According to IRS rules for business travel, the following “ordinary and necessary” expenses are tax deductible if you can justify travel as beneficial to your business:
Travel to and from your home and business destination
This includes the cost of travel by air, rail, road, or waterway required to do business away from home for more than an ordinary day’s work. You can’t deduct the value of frequent flyer miles or similar rewards programs—only out-of-pocket expenses.
Taking a taxi, shuttle, limousine, or rideshare between the airport, your hotel, and a business destination is deductible. The cost of your regular commute from home and the office isn’t deductible, even if you’re working in a different location within the metropolitan area where your tax home or office is located.
Using your own car
If you drive your own vehicle on a business trip, you can track and deduct actual expenses for operation and maintenance or use the IRS standard mileage rate. You can also track and deduct the cost of parking and tolls.
Shipping baggage, product, or display materials
Freight or delivery charges for anything you need to fulfill the purpose of your business trip qualify for deduction.
Meals and lodging
As with mileage, you can track actual expenses or use IRS per diem rates, which establish a daily allowance based on your travel destination. Standard rates differ by month based on seasonality and include an allowance for meals (breakfast, lunch, and dinner) plus incidental expenses (M&IE) such as tips or fees for room service. Even with the per diem allowance, you can only deduct 50% of the cost of meals.
This includes any expenses for business calls, faxes, or internet access.
Tips and gratuities
Tips paid for any qualifying business travel expenses not already covered by M&IE are deductible.
Examples of other “ordinary and necessary” expenses include laundry and dry cleaning services, computer or equipment rentals, and stenographer’s fees.
What to include in a travel expense policy
In addition to clearly defining allowable business expenses (so there’s no question how employees can spend company funds or whether they’ll be reimbursed if using personal funds), your travel expense policy should outline processes, such as:
How to book travel
Are employees required to use a partner travel agency or online booking site with negotiated rates? Or do they have the flexibility to make reservations with their preferred airlines, hotels, and rental car companies? If so, are limits imposed on how much they can spend or be reimbursed?
How to pay for travel
Should employees use a corporate credit card or a personal card? Do they need to get travel arrangements approved before booking or do they have a discretionary travel budget?
How to report expenses and get reimbursed
What’s the process and timeline for tracking expenses, getting approval, and submitting expense reports? Are employees required to track actual expenses or use standard mileage and per diem rates?
What about “E” for entertainment?
As mentioned above, the IRS made business expenses for entertainment, amusement, and recreation non-deductible in 2018. This includes the cost of taking business clients or employees and their families to sporting events, nightclubs, or on vacation-like trips.
The entertainment exemption also applies to “lavish or extravagant” meals, which aren’t defined by a fixed dollar amount. The IRS simply states that meals are deductible if “reasonable based on the facts and circumstances.”
Your travel expense policy should provide guidance or set spending limits to help employees navigate gray areas around entertainment and meals.
Deducting the cost of business gifts
When you’re traveling for business, you might also purchase gifts for clients. IRS rules allow a deduction up to $25 for each business gift. This includes gifts given indirectly to a client’s family. When business partners or spouses give joint gifts, they are counted as one taxpayer and can’t each claim a deduction.
- Incidental costs for gifts—Additional costs related to business gifts can be deducted if they don’t add substantial value. These costs include packaging, engraving, and shipping.
- Gifts under $4—Widely-distributed gifts that cost less than $4 and that prominently display your company name or logo (also known as corporate swag) aren’t deductible. Neither are signs or display racks that you provide to clients for promotional purposes.
Tracking and managing T&E
Because T&E includes a wide range of expenses incurred by anyone in your company who travels, conducts business over meals, or manages client relations, it can be a burden to track and manage.
If you’re looking for a more efficient way to track and manage travel and expenses (that doesn’t rely on paper receipts or manual expense reports), the Divvy spend and expense management platform provides a way to:
- Issue Divvy cards to every employee who spends.
- Create budgets by department, event, or expense category.
- Book, manage, and pay for travel in one place.
- Collect digital receipts at the point of purchase.
- See every transaction in real time.
- Eliminate expense reports AND software costs.