IRS Publication 463

Introduction

IRS Publication 463, also known as “Travel, Entertainment, Gift, and Car Expenses,” is a comprehensive document issued by the Internal Revenue Service (IRS) that provides detailed guidelines and instructions for taxpayers on how to substantiate and report various business-related expenses. This publication is essential for individuals and businesses seeking to understand the tax implications of expenses incurred while conducting business activities. This document covers four main categories of expenses: travel, entertainment, gifts, and car expenses.

Travel Expenses

Travel expenses are the ordinary and necessary expenses of traveling away from home for business, profession, or job. To qualify as a deductible business travel expense, the travel must be primarily for business purposes. If the travel is partly for personal reasons, only the business-related portion is deductible.

Deductible Travel Expenses

1. Transportation Costs: This includes the cost of air, train, bus, or car travel between your home and your business destination.
2. Baggage and Shipping Costs: Expenses for shipping baggage and sample or display material between regular and temporary work locations.
3. Taxis and Other Transportation: The costs of taxis or other transportation to and from the airport, hotel, and work location.
4. Lodging and Meals: The cost of lodging and meals while away from home on business. However, there are specific rules regarding meal deductions.
5. Cleaning and Laundry: Cleaning and laundry expenses incurred during a business trip.
6. Telephone and Communication: Business calls and communication expenses while traveling.
7. Tips: Tips you pay for services related to any of the above expenses.

Non-Deductible Travel Expenses

1. Personal sightseeing and entertainment.
2. Costs for family or friends accompanying you.
3. Commuting costs between home and regular place of work.

Recordkeeping

The IRS requires adequate records to substantiate your travel expenses, including:

• The amount of each expense.
• The date and purpose of the travel.
• The business relationship to you of the persons you meet (if applicable).

Entertainment Expenses

Entertainment expenses are those incurred for activities generally considered to provide entertainment, amusement, or recreation. These expenses are only partially deductible and are subject to stringent substantiation requirements.

Deductible Entertainment Expenses

1. Meals: Meals associated with entertainment, subject to 50% limit (as of the current year).
2. Events and Activities: Tickets to sports events, theater, or concerts, and expenses for activities with clients or employees.

Limitations and Restrictions

Expenses for entertainment must meet one of the following conditions to be deductible:

• Directly related to your trade or business.
• Associated with a substantial and bona fide business discussion.

Non-Deductible Entertainment Expenses

Due to changes in tax law (Tax Cuts and Jobs Act of 2017), many entertainment expenses are no longer deductible, including:

1. Costs for entertainment not directly related to active conduct of trade or business.
2. Membership dues for clubs organized for business, pleasure, recreation, or other social purposes.

Recordkeeping

• Amount and date of each entertainment expense.
• The place where the entertainment took place.
• The business purpose of the expense.
• The business relationship to you of the persons entertained.

Gift Expenses

A gift expense is the cost of a gift you give in the course of your trade or business. Gifts are subject to a $25 maximum deduction per recipient per year.

Deductible Gift Expenses

1. Direct Gifts: Items directly given to businesses or individuals as business gifts.
2. Incidental Costs: Costs such as engraving, packing, and insurance are not included in the $25 limit if they don’t add substantial value.

Non-Deductible Gift Expenses

1. Items of nominal value (e.g., promotional items) that are not considered gifts.
2. Costs exceeding the $25 per person per year limit.

Recordkeeping

You need to keep accurate records showing the following:

• Cost and description of the gift.
• Date the gift was made.
• Business purpose for giving the gift.

Car Expenses

Car expenses include the costs incurred while using a car for business purposes. The IRS provides two methods for calculating these expenses: the standard mileage rate method and the actual expense method.

Standard Mileage Rate Method

This method allows you to deduct a standard rate per mile driven for business purposes. The rate is periodically adjusted by the IRS and covers operating costs such as gas, oil, repairs, insurance, and vehicle depreciation.

Actual Expense Method

This method involves deducting actual costs incurred in operating the car for business, including:

• Gasoline and oil
• Repairs and maintenance
• Depreciation
• Insurance
• Vehicle registration fees
• Lease payments
• Tires, etc.

Recordkeeping

For both methods, you must maintain accurate and detailed records including:

• Odometer readings for the beginning and end of the year.
• Total miles driven for business.
• Specifics of each business trip, including date, destination, and purpose.
• Costs and receipts associated with car expenses if using the actual expense method.

Conclusion

IRS Publication 463 serves as a valuable resource for taxpayers to navigate the complexities of deducting business-related travel, entertainment, gift, and car expenses. Adhering to the guidelines and maintaining meticulous records can ensure compliance with tax laws and potentially result in significant tax savings.

For more detailed information and updates, you can refer to the official IRS Publication 463 on the IRS website: IRS Publication 463.