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Scenario: I own my own business (LLC). There is a business-related conference that I wish to attend that requires travel. I assume airfare, cabs, hotel and conference tickets are all obvious expenses that I can use my American Express Business card on. But what about meals? Can I expense meals? What are other things can and cannot be expensed?

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    I think there are two issues. If you own 100% of the business (or get the agreement of all the other shareholders) you can charge what you like. But you may be obliged to consider some of the expenses as 'income' for tax purposes. That's what Chad's answer is about. If you have other shareholders that's a separate question. Nov 8, 2011 at 18:58
  • @DJClayworth - As I stated in the answer the business can pay anything it wants but anything not reimbursable should be counted as income. If you go beyond the allowable I would read up on Embezzlement statutes, and consult a professional to be certain you are not going to get in trouble.
    – user4127
    Nov 9, 2011 at 17:02

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The IRS Guidance pertaining to the subject. In general the best I can say is your business expense may be deductible. But it depends on the circumstances and what it is you want to deduct.

Travel

Taxpayers who travel away from home on business may deduct related expenses, including the cost of reaching their destination, the cost of lodging and meals and other ordinary and necessary expenses. Taxpayers are considered “traveling away from home” if their duties require them to be away from home substantially longer than an ordinary day’s work and they need to sleep or rest to meet the demands of their work. The actual cost of meals and incidental expenses may be deducted or the taxpayer may use a standard meal allowance and reduced record keeping requirements. Regardless of the method used, meal deductions are generally limited to 50 percent as stated earlier. Only actual costs for lodging may be claimed as an expense and receipts must be kept for documentation. Expenses must be reasonable and appropriate; deductions for extravagant expenses are not allowable. More information is available in Publication 463, Travel, Entertainment, Gift, and Car Expenses.

Entertainment

Expenses for entertaining clients, customers or employees may be deducted if they are both ordinary and necessary and meet one of the following tests:

Directly-related test: The main purpose of the entertainment activity is the conduct of business, business was actually conducted during the activity and the taxpayer had more than a general expectation of getting income or some other specific business benefit at some future time. Associated test: The entertainment was associated with the active conduct of the taxpayer’s trade or business and occurred directly before or after a substantial business discussion.

Publication 463 provides more extensive explanation of these tests as well as other limitations and requirements for deducting entertainment expenses.

Gifts

Taxpayers may deduct some or all of the cost of gifts given in the course of their trade or business. In general, the deduction is limited to $25 for gifts given directly or indirectly to any one person during the tax year. More discussion of the rules and limitations can be found in Publication 463.

If your LLC reimburses you for expenses outside of this guidance it should be treated as Income for tax purposes.

Edit for Meal Expenses:

Amount of standard meal allowance. The standard meal allowance is the federal M&IE rate. For travel in 2010, the rate for most small localities in the United States is $46 a day.

Source IRS P463

Alternately you could reimburse at a per diem rate

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  • You say meals are limited to 50% so what happens when you charge a meal to your Business Credit Card? Do you then personally owe the business 50% of the charge? Nov 8, 2011 at 17:35
  • Also, most of this documentation leans towards "reimbursement". Since I will be using a Business Credit Card, there is no one to reimburse. I am, more or less, trying to determine what is safe to charge on the Business Credit Card and what isn't. If this is a different question, let me know. Thanks for your answer. Nov 8, 2011 at 17:53
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    The business can pay for it but if the amount is over the standard allowance the 50% should be treated as income for tax purposes. You could also pay a Per Diem rate for all expenses. You will want to talk with your accountant if your expenses are regularly outside of the IRS Acceptable rates. They sometimes have other options but someone who knows more about your expenses would be in a better position to recommend where to look. If the IRS decides you applied a code improperly the penalties are to severe to take lightly over a few hundred dollars.
    – user4127
    Nov 8, 2011 at 17:57
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    @BrianDavidBerman - Any payment expense that the business covers that does not fall into being covered by p463 should generally be reported as income... that is the 1040EZ type of answer. I assume your name is on the card, and that you are ultimately responisble for the charges on the card. If so then the business paying the card would PROBABLY be considered reimbursement by the IRS. You may want consult a professional to verify that you are within the guidelines of the law.
    – user4127
    Nov 8, 2011 at 18:16
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The IRS clearly states that for businesses to claim deduction on trips, the travel’s primary purpose should be for business. You can claim mileage, travel costs, per diems under tax deductions. The standard allowable rate of mileage and per diem also varies from state to state and the IRS updates the rate annually. To know exactly how much can you save on tax deductions, you can use a per diem calculator.

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The general principle is that expenses that would have been incurred without the job are not deductible. If you wouldn't have otherwise gone to the city, then the plane tickets are deductible. For lodging, you do normally have housing expenses, but hotels tend to be more expensive, plus you probably still have to pay rent/mortgage at your residence, so the hotel is an additional expense rather than a replacement of a regular expense. Meals are where it gets complicated, as you would have had to eat anyway, but meals on the road tend to be more expensive, so while the entire cost isn't an additional expense, some of it is. The IRS has settled on letting you deduct some of the cost of meals, with the cap being 50%.

There's been some discussion on a further point in the comments, and I think it should be put in an answer: Technically, you can charge anything you want to the business card, you just have to consider anything you charge that isn't deductible to be income. However, it's still legitimate to ask what is deductible in deciding what to charge, in that it is a good idea to keep the accounts separate, as the accounting gets messy otherwise. And if you have a credit card that's labelled as being a business card that's being used for personal expenses, that can raise red flags.

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