What Are T&E Expenses in Accounting?

Travel and Entertainment (T&E) expenses are a common category of business spending, covering costs incurred by employees during work-related travel and client entertainment. These expenses represent a significant portion of a company’s operational budget and require diligent tracking for financial accuracy and compliance. Managing T&E impacts daily operations and annual tax reporting.

Components of Travel Expenses

Travel expenses include all costs an employee incurs when traveling away from their regular place of business for work. This includes transportation, such as airfare, train tickets, car rentals, and local ground transportation like taxis or ride-shares. Lodging, including hotel stays or other temporary accommodations, are also part of these expenses.

Meals consumed by employees while away from home on business are also considered travel expenses. The Internal Revenue Service (IRS) generally allows a 50% deduction for these ordinary and necessary meal expenses. This distinguishes them from entertainment meals, as the primary purpose of travel meals is employee sustenance. Other incidental costs, such as parking fees, tolls, and tips, are also included.

Components of Entertainment Expenses

Entertainment expenses involve costs for activities designed to entertain clients, potential clients, or business partners, with the aim of fostering business discussions or building relationships. Examples include meals with clients where business is discussed, tickets to sporting events, concerts, or other leisure activities used for business purposes, and costs associated with client hospitality. These expenses are often incurred as part of marketing efforts or client relationship building.

Generally, most entertainment expenses are no longer tax-deductible for businesses. Costs for activities like sporting events or theater tickets are typically not deductible, even if a business discussion occurs. However, specific exceptions exist, such as expenses for recreational or social activities primarily for the benefit of employees, like company holiday parties, which may remain 100% deductible. Despite their non-deductibility, companies continue to track these expenses for internal financial reporting, budgeting, and compliance with company policies.

Business Importance of Tracking T&E

Tracking T&E expenses is important for several business reasons. It provides clarity for budgeting and cost control, allowing companies to understand where funds are allocated and identify areas for potential savings. This supports financial planning and managing operational costs.

Accurate tracking of T&E contributes to the precision of financial reporting. As T&E can represent a substantial operational cost, proper accounting ensures financial statements reflect true economic activity. It also ensures adherence to internal company policies regarding spending limits and approved expense types. Proper tracking supports overall tax compliance.

Managing T&E

Companies implement structured processes to manage T&E expenses. The process begins with employees submitting expense reports for costs they have incurred. These reports are usually accompanied by receipts and details about the expense, such as date, purpose, and who was involved.

Once submitted, expense reports enter an approval workflow where managers or finance departments review them for validity and adherence to company policy. If approved, employees are reimbursed for their out-of-pocket expenses. Many businesses leverage expense management software and platforms to streamline this entire process, from receipt capture to approval and reimbursement, enhancing efficiency and accuracy.