IRS Publication 463 (Travel, Entertainment, Gift, and Car Expenses (for 2016 Tax Returns))
Available at https://www.irs.gov/pub/irs-prior/p463–2016.pdf
The IRS has released its latest version of Publication 463 (Travel, Entertainment, Gift, and Car Expenses) for use in preparing 2016 tax returns. This publication explains when employees and sole proprietors may deduct work-related travel, entertainment, gift, or transportation expenses on their federal income tax returns, and how to calculate the deduction amounts. It also describes the records that must be kept to substantiate the expenses, and where and how deductible expenses must be reported. In addition, the reporting discussion summarizes the rules for accountable plans, which allow employer reimbursements for expenses to be excluded from income (in which case the expenses are not deductible by the employee).
Few notable changes have been made from the 2015 version. The standard business mileage rate has been updated to reflect 2016’s lower rate of 54 cents per mile (see our Checkpoint article); the per diem rates for establishing certain travel expense amounts have been updated as well (see our Checkpoint article). The publication also reflects various cost-of-living adjusted amounts related to the business use of cars, trucks, and vans. These include the depreciation limits for vehicle expenses and the value-based amounts—known as “inclusion amounts”—that reduce lease payment deductions when vehicle values exceed the applicable threshold. (Tables providing the inclusion amounts for vehicles first leased in 2012 through 2016 appear at the end of the publication.) The adjusted vehicle-related amounts continue to take into account the 50% special (“bonus”) first-year depreciation allowance, which the publication now explains is only available for cars placed in service prior to 2020.
EBIA Comment: Publication 463 covers a lot of ground, but it is especially detailed and useful in its handling of the deductions for business use of an employee’s vehicle. Those deductions will not apply if the employee’s expenses are reimbursed under an accountable plan, in which case the employer reimbursements are excluded from income and the vehicle expenses are not deductible by the employee. Business use of an employer-provided vehicle typically avoids income taxation as a working condition fringe benefit under Code § 132(d), and it also does not result in an employee deduction. For more information, see EBIA’s Fringe Benefits manual at Sections II.E (“Employee Business Expense Reimbursements”), IV (“Company Cars and Related Benefits”), and XXI (“Travel Expense Reimbursements”).
Contributing Editors: EBIA Staff.