Managing Nonprofit Travel Expenses

Posted by npocpas1 npocpas1
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It’s no secret that the IRS has lots of rules about expenses and about how to log and submit them for tax purposes. Although being a nonprofit organization keeps you exempt from actually paying taxes, it does not mean you are exempt from many of their other rules – including the task of keeping travel and other expenses organized.

So, what is the best way to do this? Let’s go over some of the key points pertaining to organizing travel expenses for nonprofit organizations.

                                                                                                              Travel Policies and Procedures

The first step to managing travel expenses for your organization is to have a set of defined travel policies and procedures. These policies and procedures should be distributed to all relevant members of the organization and reviewed before any travel outings. Ensuring that employees or volunteers are clear in what they need to provide after their trip, will make the rest of the process that much easier. Setting up a clear system is the best way to get clear and organized results, saving you time and hassle.

Travel procedures should outline:
1. A list of exactly what can be reimbursed and what is not reimbursable
2. The required documentation
3. Information about the standard mileage rate
4. An outline of estimated budget for certain expense categories (i.e. food, lodging, airfare, taxi, tips, parking ect) – based on individual trips

                                                                                                                       Accountable Plan

If you reimburse an employee or even a volunteer for travel (or for other expenses), you must do so using an “accountable plan”. This is important because if you don’t use an accountable plan, the reimbursement will be considered taxable wages and no one who is helping or working for a nonprofit wants to be taxed on their reimbursements!

An accountable plan (IRS publication 463) is defined by:

1. Expenses reimbursed are for a nonprofit purpose
2. Expenses are accounted for within “a reasonable period of time”
3. Any excess reimbursement or allowance is returned within a reasonable period of time

To account for expenses, travelers need to provide:

1. Detailed receipts which show dates or purchase, what was purchased and the vendor
2. An expense report documenting all relevant information about the trip

                                                                                                                    The Standard Mileage Rate

The IRS updates the standard mileage rate every year. The rate for 2021 is:

• 56 cents per mile “driven for business use”
• 14 cents per mile “driven in service of charitable organizations”

Here is where we find a difference between employee and volunteer reimbursement rates, which can complicate expense reporting a little further. Employees of nonprofit organizations may be reimbursed based on the business rate, as they are incurring business mileage while on the job. On the other hand, volunteers find themselves in the category of service for charitable organizations and are therefore capped at 14 cents per mile. On the upside for volunteers, they may also be reimbursed for commuting mileage, while employees may not be reimbursed for their daily commute to and from work.

Using an accountable plan to have mileage excluded from taxable income, both employees and volunteers must provide complete documentation of their trip. Details include:

1. Date(s) of travel
2. Purpose of travel relating to the business
3. The travel destination
4. Total mileage driven
5. Include all receipts upon submission

                                                                                                                           Travel Advances

Travel advances are another topic that should be outlined in an organization’s travel policies and procedures. This can be a tricky area, depending largely on the type of travel. There are a lot of nonprofit organizations who work to help youths and often take large trips where chaperons monitor groups of youths. In instances such as these, it can be too much of a financial burden to expect the chaperons to pay up front and be reimbursed (especially when it comes to feeding large groups multiple meals a day).

This is where the concept of a travel advance makes sense, given that limits and guidelines have been given ahead of the trip. It is an option to give an advance, based on a per person budget, for meals and any other misc expenses that may fall outside of the pre-paid travel fees. Any remainder at the end of the trip would be returned to the organization. You can also hand over a company credit card – although this takes a lot of trust in the designated employee(s) who will be responsible for the limit of charges going to the card.

Regardless of the method, travel advances will come up and every organization should have a policy outlining details.