Tax and Deductions for Incidental Expenses

What are Incidental Expenses?

Incidental expenses can be defined as the minor costs and non-budgetary expenses that occur while conducting any business. Incidental expenses provide the necessary support to the business in the form of secondary expenses. Incidental expenses are generally not backed up by proof, so it is difficult to track and record them. They are unplanned and unpredictable. These expenses are not directly related to the business but support the primary activities of the business....

Types of Incidental Expenses

1. Travel-related Expenses: These are such expenses that arise when an employee needs to go on a business trip. Incidental expenses, in this case, will include all the minor expenses that will arise during the tip like tips to the hotel staff, food expenses, etc....

Limitations of Incidental Expenses

1. Difficulty in Tracking: Incidental Expenses are minor, they become difficult to track. Also, some minor expenses do not include bills so they are mostly forgotten, like tips paid to hotel staff during any business trip. Especially for big organisations, it becomes very difficult to track the incidental expenses as they are so small. It becomes difficult to tally the records when some transactions are omitted and some transactions have been recorded twice....

How Incidental Expenses are Reimbursed?

Company policy decides the procedure of reimbursement for incidental expenses. Generally, employers reimburse the incidental expenses in two ways, either they will provide the company credit card to the employee or will ask the employee to pay out of his/her pocket and the company will pay him/her later. Some employers set per diem rates to compensate for incidental expenses. A per diem rate is a daily allowance that the company needs to provide to its employee to meet incidental expenses like meal expenses, rentals, etc....

Tax and Deductions for Incidental Expenses

For Businesses: Some incidental expenses like business travel expenses, advertising costs, etc., may qualify for some deductions and reduce taxable income for businesses, but up to some extent. The expenses qualified for deductions must be ‘incidental.’...