Question

Write a memorandum to Kenia Manufacturers about the issue at hand is the accurate determination and classification of the travel expenses that are tax-deductible.

 

 

Answer 1

Memo

To: Kenia Manufacturers

From: Student’s name

Subject: Travelling Away from Home Expenses

Date: 28/02/2020

 

The issue at hand is the accurate determination and classification of the travel expenses that are tax-deductible. In reimbursing the employees for tax-deductible travel expenses, the firm could deduct any unreimbursed expenses. However, based on the new tax law, the firm has to eliminate deductions for the unreimbursed expenses, particularly for tax years 2018-20215. In line with this, only self-employed and businesses can deduct unreimbursed employee expenses.

 

The best source of information on traveling away from home expenses is the IRS. According to IRS, a business travel is basically a travel for work, which requires an employee to be away from a tax home for more than an ordinary workday. Additionally, IRS stipulates that expenses that are in current for non-permanent work assignments away from tax home not exceeding one year can also be treated as tax-deductible travel expenses.

 

Revenue Procedure 2019-48 differentiate between the amount of necessary and ordinary business expenses incurred or paid in regard to traveling away from home. In line with this procedure, the firm is not required to apply the recommended revenue procedure. Rather, it should substantiate the actual allowable travel expenses in line with provisions in ASC 715-20. This is only possible if the firm maintains adequate records on expenses incurred or paid on travelling away from home.

 

For proper documentation, several recommendations are provided. Once an official duty outside the firm is approved, the executing employee must apply for an imprest. The imprest must specify the number of days, the applicable rate based on the grade, transport amount, other expenses, and any other vital detail. Verification of the imprest has to be done by both the cashier and the finance manager, after which it should be approved. Once approved, the imprest has to be entered into the imprest register. This should occur upon release of payment to the executing employee's imprest/receivables accountant within the finance department as stipulated under ASC 310-10-15. The executing employee needs to have a copy of the imprest warrant to facilitate surrendering of the imprest after the completion of the duties. In surrendering the per diem imprest, the following documents must be availed:

 

• Air, bus, taxi tickets, or an original copy of boarding pass.
• Immigration entries and passports.
• Imprest accounting form
• Receipts on meals, entertainment, etc.

 

The imprest accounting form, accompanied by the above support documents, should be examined and signed by the imprest accountant and then forwarded to the finance department for purposes of completeness of expenditure and vouching. Then, the imprest accountant should send the imprest register to the internal auditor for more investigation on completeness. The surrendered duly completed imprest will then be expensed in the firm's accounting system in line with Revenue Procedure 2019-48, IRS Publication 463, and IRS Publication 535. For instance, per diem expenses for recreation, amusement, and entertainment should remain non-deductible. Otherwise, the allowable per diem meal expenses can only remain deductible in the case the mean is bought separately from recreation or entertainment expense. By doing so, it is possible to differentiate between necessary and ordinary business expenses involving travelling away from home.

Memo

To: Kenia Manufacturers