what are non-deductible expenses

What are non-deductible expenses?

Written by Jonas De Schaut
Jonas is Content Strategist at Rydoo.

When reading about Travel and Expense, you may have come across the term “non-deductible expenses”. It’s not as confusing are “per diems” but,  if you’ve ever asked yourself “What are non-deductible expenses”,

In this blog post, part of our 101 for beginners series “T&E for dummies”, we’ll clarify once and for all what non-deductible expenses are, share some examples, explain the importance of proof-of-expense and a T&E Policy. We’ll also answer one of the questions we get asked most often: “are digital expense solutions a better option than employee prepaid cards?”.

Watch our quick 101

What are non-deductible expenses?

Deductible expenses are expenses a company can subtract from its income before it is subject to taxation. Non-deductible are simply the ones that can’t be subtracted. It’s important to understand which ones are deductible and the ones that aren’t. 

When employees start incurring expenses on behalf of their company, knowing which expenses are fully deductible, partially deductible or not deductible at all can be a real struggle. 

 Unfortunately, it’s not a question we can answer with one answer. This is mostly because it all depends on national or local legislation Some countries (or even states) will allow certain expenses to be deducted, while others will see them as non-deductible or only partially deductible. 

To give you an overall view, we’ve selected some business expenses that are typically not deductible and typically deductible. We advise you always double-check with your accountant or your company’s T&E policy to be sure. 


1- Typically non-deductible expenses: 

  • Penalties & Fines 
  • Political Contributions 
  • Burial, funeral, and cemetery expenses 
  • Legal fees and expenses 
  • Clothes 

2- Typically deductible expenses:  

  • Car rental
  • Hotel 
  • Meals on a business trip    

An efficient T&E Policy can simplify all of these questions for business travellers, avoiding repetitive questions and general confusion It also helps companies to comply with local regulations.

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Why is a proof-of-expense important?

Without a proof-of-expense, an employee won’t get the necessary approval for their expense to be reimbursed. 

Proof-of-expense – as the name suggests – will help employees prove that their expense is a real business-related expenditure -They must always submit receipts and if necessary, other documents to prove their expense.

Sometimes employees are also required to submit records of how those expenses are related to certain business activity. A dinner expense, for example,  is only deductible if it’s related to business,  like a dinner with a prospect or client.

For an expense to be deductible, it is the employee’s job to provide evidence for its claim with not only a receipt but additional information on how the expense related to business.

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Is a digital expense solution a better option than employee prepaid cards?

Prepaid cards are seen as a great solution by many in the corporate world. Prepaid cards have many benefits, including having more control over employee spending. 

 But there are several critical obstacles that prepaid cards don’t overcome. Modern companies need to keep these in mind if they want to stay ahead of the competition. Here are a few issues that prepaid cards don’t solve:  

 

1- They’re not your best defence against fraud

Prepaid cards don’t help with tracking which expenses are deductible or not. Anything can be paid with a prepaid card and it’s the finance department’s job to identify non-deductible expenses and fight fraud. 

A recent study from expense tech provider Chrome Riverhighlighted a real expense-fraud problem for companies. In the U.S, expense fraud costs companies U$ 1.9 billion each year  You don’t want to contribute to these statistics, right?

An automated digital solution (like Rydoo), will help companies oversee all expenses incurred and make sure they comply not only with local regulations but also with the company’s T&E policy.  The finance department – and employee- will both receive a real-time notification in when an expense doesn’t comply with either the T&E Policy or local regulations. It’s a killer solution to fight fraud.

 

2- They’re not the end of massive manual workload and avoidable paper use

Prepaid cards still request a lot of manual work, especially because an audition must be made to identify non-deductible expenses that were incurred as a business expense. Hard copies of receipts, regardless of payments using the card for tax write-offs, are required by the finance department. Employees also need to file expense reports and submit receipts for proof. In other words: a lot of unnecessary, avoidable and non-environmentally-friendly paperwork. 

Go digital, Rydoo it

Now that you know what non-deductible expenses are and the importance of having a digital solution to help you oversee company expenditures, how about having a talk with one of our specialists? If you’re seeking for a more personalized approach on how Rydoo can benefit your company, book a demo with one of the Rydoo’ers.

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