Employee Business Expenses Revisited

By Fiore, Nicholas | Journal of Accountancy, June 1995 | Go to article overview

Employee Business Expenses Revisited


Fiore, Nicholas, Journal of Accountancy


Among the more ballyhooed changes made by the Revenue Reconciliation Act of 1993 (RRA) were the limits placed on deductions for travel expenses of spouses and dependents, the denial of deductions for most club dues and the further limits on deductions for business meals and entertainment expenses. While these changes have been effective since the beginning of 1994, regulations addressing some of the consequences of these provisions and their treatment by employees and their employers were proposed only at the end of that year.

RRA CHANGES

Spousal travel. Previously, the deduction for the travel costs of a spouse, dependent or other individual accompanying an employee was determined by whether that person's presence had a bona fide business purpose on the employee's trip and was more than incidental. However, Congress felt that merely accompanying or being related to a traveling employee should not convert otherwise nondeductible personal expenses into deductible business expenses. Thus, to be deductible, the accompanying individual now had to be an employee of the taxpayer, the travel had to be for a bona fide business purpose and the expenses had to otherwise be deductible.

Club dues. Club dues had been deductible if the taxpayer's use of the club was primarily for the furtherance of his or her trade or business, and the specific expense was directly related to the active conduct of that trade or business. Because it was felt that some element of personal pleasure and enjoyment was present in such a membership, this treatment was changed; no deductions have been allowed for amounts that have been paid or incurred since 1993 for membership in any club organized for business, pleasure, recreation or other social purpose.

Meals and entertainment. Previously, 80% of the cost of meals and entertainment had been deductible, assuming certain substantiation requirements were met. Since some portion of these costs represented personal consumption, even if the expenses served a legitimate business purpose, the percentage of the deduction was reduced: As of 1994, the deductible portion of otherwise allowable business meals and entertainment expenses is 50%. …

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