What are Incidental Expenses?
Incidental expenses, which are sometimes simply referred to as "incidentals," are costs that are incurred as part of daily life during business activities. The term most commonly applies to expenses that arise during business travel. Examples include taxi fare, the cost of meals, additional hotel charges like laundry services, and the cost for an Internet connection. Personal expenses, such as a hair cut or purchase of clothing or toiletries, are usually not covered.
Each business handles incidental expenses slightly differently. Some expect their employees to pay for such expenses out of pocket. In this case, it is most common for the employees to submit a list of the items that they paid for with their own funds along with receipts to back up their claims, and the company will then issue reimbursement. Most companies reimburse their employees by cutting them a check that is separate from their paycheck so that it is clear that the reimbursement is separate from the employee's income. This practice is important for accounting and tax purposes.
Other companies provide their employees with cash or a credit card to be used for incidental expenses. Cash is usually given to the worker out of the company's petty cash, and any that remains much be returned at the end of the business trip. As with expenses that are paid for out of an employee's personal funds, those paid for out of petty cash or with a company's credit card must be backed up with receipts. For this reason, it is very important for an employee to keep detailed receipts for every purchase that he makes or fee that he pays while traveling for business.
Most companies have a policy about incidental expenses in their employee handbooks. There are usually limits on the kind of expenses that a company will pay for and the amount that a company will cover for these kinds of expenses. For example, companies almost always cover an employee's meals during business trips, especially if the employee will be dining with a client or potential client, but there are usually caps on the costs of those meals. While an employee may be allowed to take the client to a nice restaurant and offer to pay for a good bottle of wine or other expensive alcoholic beverages, he usually cannot spend an unreasonable amount of money.
As a small business, how do I pass on my incidental expenses to my customer?
@MrSmirnov - Yes, incidental expenses are important because some of these business expenses can be deducted. Businesses are looking for every expense they can legally deduct, so keeping your receipts is definitely a good idea. For things like mileage IRS tables are available online which tell you how much can be deducted and the per mile rate, as well as other expenses that the business can deduct during travel.
These include commuting expenses and even the amount that you pay for parking, for example. Just give your receipts to accounting and they’ll figure it out.
At our company we have a list of cities that we might be traveling to and the per diem rate. Sometimes if a city is not on the list we can use a per diem calculator to come up with a reasonable number for that city. Then when we return from the trip we have to submit a business expense form so that we can be reimbursed for the per diem.
More often than not, I usually make a little “profit” on the per diem, although I don’t know if profit is the right term. For example, hotels usually provide their own breakfast, so there’s no outlay there. For airports, I may buy a snack during layovers, and I usually go light on dinner. Lunch is where I would spend most of the money, and this usually involves taking clients out to eat.
If you are working for a smaller company and they ask you to provide an estimate of how much you will need to cover incidental expenses, what is a good figure for a day?
I know that things like food, drinks and transportation are generally covered, but what else should I include. Should things like tips, and medical travel insurance be covered?
I want to prepare a realistic estimate that will show my company I am thinking responsibly and am planning ahead. I would like to go on future business trips for my company and feel that this first budget is very important.
If you are traveling for business for the first time and your company has given you a credit card or cash for incidental expenses make sure you keep track of every dollar you spend. Companies put a certain amount of trust in their employees when giving them petty cash, or offering to reimburse them for expenses.
Check your company guidelines for incidental expenses and keep all of your receipts neatly organized. A good idea for this is to keep a small expandable file folder handy to slip your receipts into. Another thing you should consider is keeping a simple account book showing expenditures and dates.
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