Meeting And Incentive Travel – A Few Notes On Taxation
A meeting and incentive travel program is a good way to bolster productivity and enhance the relationship of employees. Done right, businesses can get good returns on their investments.
Although careful attention should be paid to planning, logistics and choice of destinations, business organizations should not forget about the legal ramifications of implementing such a program, especially laws pertaining to taxes. In particular, organizations should be familiar with the Tax Reform Act of 1986 which poses some challenges with regards to the implementation of travel incentives.
When organizations award incentives to their employees or even their customers, they can deduct the associated costs. The employees or customers, on the other hand, need to declare the fair market value of the award as a form of income. As for meetings, organizations should make sure that documentation like agenda and programs are duly prepared and accomplished.
Another important thing organizations should be mindful of is the monetary value of the award; they must make sure that it is ordinary and necessary for the business to avoid troubles with the Internal Revenue Service. If the IRS deems the award to be too lavish, this can spell trouble for the sponsoring organization. In order to stay in line with governing laws and regulations, organizations can fare well by updating deductions in an account book. Keeping diaries, statements of expenses, credit card slips and hotel slips is recommended.
Employees who win in the incentive program can declare the award as a compensation or wages. Sponsoring organizations should make sure to declare the full value of the award in their 1040s. This may be counted in their gross income.
There may be cases wherein business and pleasure mingle. In such cases, businesses must determine which element outweighs the other. If the incentive is more business-like in nature, the associated expenses will not count as a form of income and may be deductible. On the converse side of the coin, if pleasure is the main agenda, expenses may be declared as an income. Take note that in instances wherein the expenses are classified as business expenses, the employee can only deduct business expenses that exceed 2 percent of his adjusted gross income. If the expense falls below that level, it cannot be deducted. When the business implements an accountable reimbursement plan, on the other hand, the employee cannot declare the incentive as income and should not be taxed. But if the employer implements a non-accountable reimbursement plan, the employee may declare the incentive as an income in his W2 form and may be taxed.
Should the sponsoring organization reimburse mileage, it must make sure to establish mileage and per diem rates which are laid out in the Tax Reform Act. Businesses that opt not to follow the guidelines must properly declare and substantiate deductions in specific detail.
When the chosen destination is another country, organizations must take due care when the purpose of the travel is primarily business. They must prove to the IRS that the trip to an international destination is related to the business and that choosing the foreign destination was done within reasonable bounds.