Best practices for managing business travel expenses

Business travel is essential across many industries. Whether your team is traveling for conferences, client meetings, or scouting new business opportunities, these costs can quickly add up if you’re not careful.

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Thankfully, you can take a strategic approach to planning and managing your business travel expenses without cutting corners or impacting employee morale. In this post, we’ll help you understand what qualifies as a valid business travel expense and share some best practices for managing these costs effectively.

What are business travel expenses?

Business travel expenses are ordinary and necessary expenses incurred while traveling away from your tax home for business purposes. In this case, your tax home is the city or general area where your main place of work is located. If you don't have a designated office, your tax home is wherever you make your family home.

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To get even more specific, your travel must qualify as a “business trip” if you want to deduct travel expenses on your income tax return. The IRS considers you to be on a business trip if the travel is primarily for business purposes, you’re away from your usual workplace for longer than normal working hours, and you need to get some sleep to meet your job duties while away.

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If your trip meets these criteria, the expenses you incur while traveling are generally considered tax-deductible business expenses.

What’s considered a business travel expense?

Common travel expenses you can claim on your business tax returns include:

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• Airfare: The cost of flights and baggage fees for business trips, whether domestic or international‍
• Transportation costs: Costs associated with other transportation during business travel, such as trains, buses, rental cars, taxis, or rideshare services. If you use your personal vehicle, you can deduct your actual expenses or the standard mileage rate, as well as tolls and parking fees.‍
• Hotel or lodging expenses: Accommodation costs during business travel, including the room rate and applicable taxes‍
• Meals: You can deduct 50% of the costs for meals while traveling for business‍
• Incidental expenses: Incidental expenses like gratuities, laundry and dry cleaning charges, and internet access charges‍
• Business-related expenses: Expenses directly related to conducting business, such as conference registration fees, client entertainment, equipment rental costs, and more

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Again, these travel expenses are tax-deductible only if they’re for business-related activities. This means any claimable business expenses must be completely related to doing your job and meeting your company's business goals. This goes for both full-time employees and self-employed individuals.

What’s not a valid business travel expense?

You can’t claim an expense for something that benefits you personally more than your business. Examples of expenses you can't claim include:

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• Personal vacation days or leisure activities while traveling for business
• Traveling with a spouse or companion
• Personal expenses like gifts or souvenirs purchased during the trip
• The cost of commuting to your normal place of work

Methods for reimbursing travel expenses

The first step to managing business travel expenses is to decide how you want your employees to pay for them. Each option comes with its own advantages and disadvantages:

Corporate credit cards

Companies often provide employees with corporate cards for business expenditures. Not only does this keep travel costs together in a single account, but it also allows you to directly control costs by setting spending limits. It also minimizes the need for frequent employee reimbursements.

Post-trip reimbursements

Many employees prefer using their personal cards for business travel expenses because they can earn credit card rewards on the purchases. This method allows them to front the costs and later submit detailed expense reports, complete with receipts, for reimbursement. This method requires a clear and easy-to-follow expense policy, an efficient reimbursement process, and careful record-keeping. 

Per diem allowances

For specific travel scenarios, companies may opt to provide a fixed daily allowance, known as a per diem, to cover standard expenses like business meals and incidental purchases. The per diem rates are predetermined based on the destination, which means employees are spared the burden of collecting and submitting a multitude of receipts.

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The IRS has established guidelines for meal allowances during business travel. For 2024, the standard meal allowance for most travel destinations within the continental United States is $59 per day, and more for higher-cost locations. This allowance is intended to cover breakfast, lunch, and dinner expenses.

Cash advances for travel

Another option is for companies to issue cash advances to employees before they embark on their business trips. This provides a fund from which all anticipated expenses can be paid.

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Upon returning, employees are responsible for reconciling the actual expenses incurred against the advance received and returning any surplus funds. This method requires careful estimation of actual costs beforehand and diligent accounting after the trip to ensure accurate financial reporting.
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How to manage business travel expenses

1. Establish a clear T&E policy

Creating a travel and expense policy might be the most important step to effectively manage business travel expenses. It’s more than just a set of rules; it’s a guide that helps everyone in the organization understand how to handle travel-related decisions and spending

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A thoughtful travel policy prevents confusion, ensures fair treatment of employees, and safeguards the company against unnecessary costs. It should outline your travel booking guidelines, expense reporting and approval process, documentation requirements, and the timeline for reimbursement.

2. Use a travel management platform

A travel management platform can streamline the travel booking process, rein in out-of-policy spend, and provide a better travel experience for employees. Look for a tool that can automatically enforce your T&E policy and provide reports on your travel expenses.

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You could also opt for an all-in-one platform that centralizes your finance workflows. For example, Ramp handles travel booking, expense management, accounting, accounts payable, and more. Your employees can use a single app to manage T&E expenses, while your finance team gains greater control and visibility over company spending.

3. Issue corporate cards

One of the most effective ways to take control of travel expenses is to issue corporate cards to your employees. Modern corporate cards offer a variety of custom controls, particularly the ability to enforce spend limits at the card, employee, or department.

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For example, you could issue corporate cards with a spend limit that only covers an employee’s per diem. Virtual cards are another great method for controlling costs. You can spin up custom, single-use virtual cards to cover the cost of specific trips, which helps avoid the risk of expense fraud or misuse.

How to calculate business travel expenses

It’s important to track how much money you’re spending on business travel so you can accurately report on your finances and project future costs. To that end, here’s a quick breakdown of how to calculate your business travel expenses:

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1. Record and classify expenses: Keep a comprehensive record of every expense made during a business trip, and tag each expense for easy sorting. Depending on your reporting needs, you could classify expenses by trip type, expense type, or department level. This is another area where expense management software will really help your efforts.
2. Calculate the entire trip’s expenses: After the end of a business trip, tally the total expenditure before splitting expenses out into discrete categories. This data aids in setting budgets for future travel and spotting any obvious outliers.
3. Categorize your travel expenses: Split each expense out into its corresponding business expense category. Your expense management or accounting software likely has preloaded categories for transport, meals, accommodation, and so on. Studying these categories helps you understand where you should allocate funds for business travel. This step is also important for identifying and tracking tax-deductible expenses.

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With all this information recorded and ready to analyze, you can plan more accurate budgets for future business travel and identify areas where you could potentially reduce costs.

Tips to reduce business travel costs

Business travel should produce some type of return for your company. If the cost of business travel exceeds the ROI from the trip, you need to reevaluate your travel expenses and look for ways to reduce costs. Here are some tips to consider:

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• Plan ahead: Booking flights and hotels early usually gets you better rates. Flexibility with your travel dates can save you even more.
• Use loyalty programs: Sign up for airline and hotel rewards programs to earn points you can use for free or discounted flights and hotel rooms
• Opt for economy: Stick to economy class flights and budget-friendly accommodations—within reason. Consider allowing exceptions for flights longer than six or seven hours
• Negotiate corporate rates: If you travel to the same places often, try negotiating better rates with hotels and car rental companies
• Be smart about ground transport: Use public transportation or rideshares instead of pricier options like taxis or corporate car services
• Set clear policies: As discussed above, having a straightforward travel policy helps keep expenses in check and avoids any surprises

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If business travel is a big part of your operations, you might want to consider using a managed travel service. These services essentially manage travel expenses for you by following your expense policy and only booking trips that fall within it, saving you time and money.

Get control of business travel expenses with Ramp

Managing business travel expenses is a pain without the right tool. Ramp offers an all-in-one solution to streamline travel and expense management from start to finish.

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With Ramp's corporate cards, employees can easily pay for flights, hotels, meals, and other travel costs without fronting their own money. Ramp automatically captures and categorizes expenses from your corporate cards, eliminating the need for tedious expense reporting. 

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Ramp Travel lets you upload and automatically enforce your T&E policy, catching out-of-policy spend before trips start. You’ll also enjoy low rates, rewards, and a simple booking experience. See why customers who use Ramp for their travel and expense management save an average of 5% a year with an interactive demo.