Incidental expenses are the minor, everyday costs — gratuities and small fees — that arise while conducting business. Examples include tips to bellhops or taxi drivers, fees for mailing a business package, or fees for laundry on a multi‑day business trip. Incidentals are typically smaller in amount than primary travel costs such as airfare, lodging, or client meals, but they still matter for company policy, bookkeeping, and taxes.
Key takeaways
– Incidentals = small, ancillary costs tied to business activities (tips, small fees, mailing/packaging).
– Employers typically cover incidentals via an accountable reimbursement policy or per diem; employees must follow company rules for payment and documentation.
– Tax treatment differs for businesses and most individual employees: businesses can deduct business incidentals; most employees cannot deduct unreimbursed incidentals since tax law changes in 2018. Some individuals (e.g., some reservists, select performing artists, certain state/local officials) retain limited deductibility using Form 2106.
– Per diem systems (set by the GSA and other agencies) often allocate a specific portion to “incidental” expenses; rules and rates vary by location and agency.
Understanding incidental expenses
– What they cover: tips to hotel staff and taxi drivers; fees for baggage, Wi‑Fi, business-related laundry; small shipping/packaging costs for business gifts; parking between hotel and meeting; fees for exchanging currency while abroad (if business‑related).
– What they generally don’t cover: major travel items (airfare, train, car rental, lodging), personal entertainment, or large purchases that add substantial value to a gift (these may be treated differently for tax purposes).
Company policies and how to handle payment
– Check your employer’s travel/expense policy before travel. Policies usually specify:
• Whether incidentals are reimbursed at actual cost with receipts, or by per diem (daily flat rate).
• If a company card must be used or personal card is acceptable.
• Receipt requirements and expense report deadlines.
– Practical payment options:
1. Use a company (corporate) credit card for incidentals when available.
2. If you pay personally, keep originals of receipts and attach them to an expense report promptly.
3. Where the employer offers per diem, you may not need receipts for every meal/incidental — follow the per diem rules exactly.
4. Request reimbursement via a separate check or clear payroll code so reimbursements aren’t treated as taxable wages.
Taxes and deductions for incidental expenses
General rules
– Businesses: Reimbursed or paid incidentals that are ordinary and necessary business expenses are generally deductible, subject to normal substantiation requirements and any specific limits (see business gifts, meals rules).
– Individuals (employees): The 2018 Tax Cuts and Jobs Act eliminated most miscellaneous itemized deductions, including unreimbursed employee business expenses, through 2025. So most employees cannot deduct unpaid incidentals on their personal tax returns.
– Self‑employed/sole proprietors: Can still deduct ordinary and necessary business expenses (including incidentals) on Schedule C (Form 1040), subject to standard substantiation and business‑purpose rules.
Important tax specifics
– Per diem: Employers can reimburse employees under an “accountable plan” using federal per diem rates (GSA for CONUS). When properly documented, these reimbursements are not taxable to the employee and are deductible by the employer. Per diem rates differ by location and include a component for meals & incidental expenses (M&IE).
– Meals: Business meal deductions for businesses and self‑employed taxpayers are often limited (historically 50% deductible for most business meals; check current law for any temporary changes).
– Incidental portion: For federal per diem M&IE, a small fixed amount is typically allocated to “incidental expenses” (historically $5 per day in many per diem schedules); special rules apply if you claim per diem versus actual costs and if you claim meals separately.
– Business gifts: The deductible limit for business gifts to a single person is limited (historically $25 per recipient per tax year). Incidental costs related to a gift (wrapping, postage) generally do not increase that $25 allowance unless they add substantial value.
– Casualty/theft incidentals: Some incidental costs arising from a business casualty (moving, temporary housing for employees) may be treated differently; certain personal casualties’ incidental costs are not deductible under casualty loss rules.
How businesses deduct incidentals — practical steps
1. Use an accountable plan:
• Require expense reports with proofs (receipts) and business purpose.
• Return any excess reimbursements promptly.
• Reimburse via payroll or accounts payable with clear coding so reimbursements are not taxable wages.
2. Choose per diem when appropriate:
• Apply GSA or other federal per diem rates where applicable (CONUS, non‑foreign/foreign per diem set by DOD/State).
• Track dates, locations, and business purpose. Don’t exceed federal limits for lodging + M&IE where rules restrict deductibility.
3. Maintain records:
• Keep receipts, mileage logs, and documentation of business purpose and attendees.
4. Apply relevant limits:
• Observe meal deduction limitations (e.g., 50% rule where applicable).
• Respect business gift limits ($25 per recipient historically) when computing deductible gift costs.
How individuals deduct incidentals — practical steps
– If self‑employed:
1. Record and classify incidentals as ordinary & necessary business expenses on Schedule C.
2. Keep receipts, credit card records, and notes of business purpose and date.
3. If using per diem for travel, follow per diem substantiation rules or claim actual expenses with receipts.
– If an employee (most taxpayers):
• Unreimbursed incidentals are generally not deductible through 2025 as miscellaneous itemized deductions were suspended.
• Exceptions: Some taxpayers (e.g., certain Reserve/Guard members, performing artists meeting criteria, some state/local government officials) can still claim certain deductions using Form 2106 — check the form’s instructions for eligibility.
– If eligible for Form 2106:
• Retain receipts and documentation.
• Complete Form 2106 and follow its instructions for filing.
Incidentals vs. ancillary costs — common examples and tax treatment
– Business gifts: Wrapping, mailing, engraving are incidental to the gift. These incidental costs are not counted toward the gift deduction limit unless they substantially increase the gift’s value.
– Casualty/theft: Incidental costs (medical treatment for injured employees, temporary rent) associated with a business casualty have special tax treatments and are often not deductible as personal casualty losses.
– Construction: “Incidental” in construction contexts can include site preparation, original fixtures, construction insurance, design/legal fees, and general administrative costs during buildout; tax treatment will depend on capitalization vs. current deduction rules. (Capitalization rules often apply to long‑lived assets; consult tax guidance specific to construction and asset capitalization.)
National Guard and Reserve travel
– Members of the National Guard and Reserve may be eligible to claim an above‑the‑line deduction for travel that’s required and more than 100 miles from home with an overnight stay. This can include meals, lodging, and incidental expenses up to federal per diem rates. Eligible taxpayers may use Form 2106 (check current IRS rules and instructions).
Practical checklist — what to do before, during, and after a business trip
Before travel
– Read your company’s travel/expense policy; confirm per diem vs. actual expense rules.
– Ask whether a company card should be used and whether incidentals are reimbursed.
– If per diem is used, know the applicable per diem rate for your destination (GSA website for CONUS).
During travel
– Keep all receipts for incidentals unless told to use per diem.
– Record business purpose, date, and attendees for meals/meetings.
– Separate personal and business charges on cards.
After travel
– Submit an expense report ASAP with receipts and concise business purpose notes.
– If reimbursement is via per diem, submit dates and destinations to substantiate travel.
– If your employer does not reimburse and you’re self‑employed, enter allowable expenses on Schedule C with receipts.
What counts as an incidental expense? — short list
– Tips to hotel staff (bellhops, housekeeping).
– Fees for baggage handling and checked luggage (business travel).
– Fees for business‑related laundry on multi‑day trips.
– Minor shipping/postage and packaging for business items or gifts.
– Fees for business telephone, fax, or small service charges (if not covered elsewhere).
Items typically not treated as incidental:
– Airfare, hotel room cost, rental car base charge, conference registration fees, large gifts that materially add value.
What are incidental costs in construction?
– Costs related to site grading or improvement, original furnishings and equipment, professional design and legal fees, insurance during construction, and administrative overhead. Whether these are expensed or capitalized depends on accounting and tax capitalization rules — consult your accountant or IRS guidance for proper treatment.
Tax forms and publications to consult
– IRS Publication 535, Business Expenses — overview of deductible business costs.
– IRS Publication 463, Travel, Gift, and Car Expenses — guidance on travel and incidental substantiation.
– Schedule C (Form 1040) and its instructions — for self‑employed taxpayers reporting business expenses.
– Form 2106, Employee Business Expenses — for limited categories of employees who may still deduct certain expenses.
– GSA Per Diem Rates — for domestic per diem rates and M&IE breakdowns.
(Always consult the latest IRS and GSA publications or a tax professional; tax rules and temporary changes may alter deductibility and rates.)
The bottom line
Incidentals are small but common business costs that must be tracked carefully for both corporate policy compliance and tax purposes. Employers should operate accountable reimbursement plans or use per diem rates so reimbursements aren’t taxable to employees and remain deductible for the business. Most employees cannot deduct unreimbursed incidentals on their personal returns due to changes in tax law; self‑employed individuals can still deduct ordinary and necessary incidentals on Schedule C with proper records. When in doubt, document thoroughly and consult company policy or a tax advisor.
Sources and further reading
– Investopedia, “Incidental Expenses” (source URL provided)
– U.S. General Services Administration (GSA), Per Diem Rates and FAQs
– IRS Publication 535, Business Expenses
– IRS Publication 463, Travel, Gift, and Car Expenses
– IRS Forms & Instructions: Schedule C, Form 2106 —
Editor’s note: The following topics are reserved for upcoming updates and will be expanded with detailed examples and datasets.