What are incidental expenses?
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Incidental expenses are minor costs incurred in the course of business travel or other activities. Also known as incidental costs or "incidentals," these expenses aren't part of the primary objective of the activity or trip, but rather arise incidentally from the main business at hand. Thus, they're additional costs, rather than budgeted expenses like plane tickets or hotel rooms.
In this article, we'll break down what qualifies as an incidental expense, the tax implications of these costs, and how to manage them properly. We'll also outline best practices for tracking and budgeting for incidentals to set your business up for success.
What are examples of incidental expenses?
Incidental expenses can show up in many different contexts. Although circumstances vary, below are some common examples in the realm of business travel.
- Tips for hotel staff
Travel is an area where incidental costs are often encountered. Although your hotel room might be a planned expense built into your budget, the money you give the hotel porters and housekeepers as a tip would be incidental.
- Restaurant server tips
Similarly, your restaurant meals might be part of the business trip budget, but the tips you leave for the servers are incidental expenses.
- Transportation extras
Parking fees, tolls, and driver tips are considered incidental expenses even though your rental car or driver reservation is typically budgeted for on a trip.
- Wi-Fi costs
Your hotel may charge for the use of high-speed internet, which would be another incidental cost.
- Printing and photocopying
Sometimes you need to pay to print, photocopy, or make large posters for a presentation during a trip. These costs might also qualify as incidental expenses.
Other incidental expenses might include fees to repair office equipment, last-minute decor for a company event, or unforeseen fines. Taxes aren't typically considered incidentals, as they're a budgeted and planned expense in your business finances.
Are incidental expenses tax deductible?
Incidental expenses can be tax deductible, but the specifics depend on factors like your local tax laws and the types of costs involved. In general, here are some helpful guidelines to bear in mind when assessing the tax implications of incidentals:
- A company can usually deduct incidental expenses that are directly related to normal business operations—business trip tips to hotel staff, office supplies, printing, etc.
- Keeping accurate, descriptive, and up-to-date records of such incidental expenses is essential to provide support for these deductions and protect your company in the event of an audit. Always collect relevant documents like receipts and bills with details about the location, time, and the goods or services involved.
- There's a federal per diem rate that covers incidentals. The amount varies depending on where and when business is being conducted—usually about a couple of hundred dollars.
How should businesses manage incidental expenses?
Properly managing incidental expenses is an important way to make sure you have an up-to-date picture of your financial situation. You can manage your incidentals by taking the following steps.
Establish a budget
Create a budget that accounts for incidentals by reviewing your company's historical financial records. Look over the data to determine past incidental expenses and any recurring patterns. This will help you establish the usual incidental sources and how much money goes toward them. Try to separate incidental expenses into categories to allocate the correct portions of your budget to these areas.
Create an emergency fund
Incidental expenses tend to be small, but they can add up, especially if they aren't anticipated. Occasionally, there might be higher-cost incidentals as well. Creating an emergency fund with designated money for incidentals can provide some reassurance in the event of unexpected costs.
Set up processes
Set up specific procedures for incidental expenses. These might include a process for managers to approve incidental spending claims and authorize reimbursement. Establish requirements like receipts or other documentation, spending limits, and multiple channels of approval in certain instances.
Establish company rules that dictate what counts as an incidental expense and what to do about these costs. Communicate to employees the process for tracking incidentals, which documents to submit, and how to get reimbursements.
Keep the system and budget up to date
Monitor your expenses closely. Adjust your budget and how much is set aside for incidental expenses based on past spending and future projections. Update company policies around incidentals to maximize savings and efficiency as needed as well. Nothing in business financing is set in stone, and you'll likely find room for improvement in certain areas.
Automate your expense tracking
Keeping track of any company expenses, including incidental expenses, can be a huge hassle for you and your employees. Consider implementing software or other accounting systems that allow you to automate the tedious and time-consuming parts of expense tracking.
How can you track incidentals with Ramp?
Tracking financial transactions like incidental expenses requires time and effort, but good budgeting software can automate many tedious aspects of the process.
Our cards have tools for setting spending limits, reporting expenses, and categorizing charges—which means you'll have accurate data about incidental expenses to establish your budget.
Ramp also automates the expense receipt and reimbursement process, freeing up countless hours for your finance team.
Learn more about how Ramp can automate your expense tracking and help you budget more effectively.