What Is the Incidental Expense?

Incidental expenses are the miscellaneous expenditures that business people usually bear during business trips or activities. Usually, these expenses are unplanned and are not covered by the main budget schedule. Also, these expenses are small compared to other business expenses.

The following things are considered as part of incidental expenses:

• Gratuities or tips given to hotel staff
• Buying snacks or beverages
• Purchase of required items during business travel

Incidental Expenses Examples

What are examples of incidental expenses? Let’s have an incidental expense example for a better understanding. Suppose a group of professionals take a business trip. They have many scheduled expenses like lodging, restaurant meals, and cab ride booking. However, they will have the following unplanned business expenses:

• Tips given to the baggage carriers and porters
• Tips given to the housekeepers during the lodging
• Tips given to waiters as restaurant gratuities
• Tips given to the driver, tolls, and parking fees
• Using internet and Wi-Fi costs of the hotel
• Damaging of any equipment that belongs to the company property

All the above expenses will be considered as incidental expenses because these are unscheduled.

Types of Incidental Expenses

Based on different purposes, incidental expenses are divided into different types. Have a look at the below-listed points:

1. Customer Entertainment Related Expenses

Companies offer gifts or perks to attract customers and make customer bonding strong. In this case, incidental expenses will be wrapping paper, stickers, ribbons, or greeting cards.

2. Employee-encouragement Costs

These expenses are related to snacks, magazines, and newspapers available in the reception area. Additionally, costs associated with cakes, candles, or birthday gifts purchased for birthday celebrations in the office will be considered incidental expenses.

3. Travel Expenses

Travel costs like tips given to hotel staff, cab drivers, housekeeping staff, etc come into travel expenses.

4. Service-Supplementing Costs

Service-supplementing costs include the goods packaging, commission given on the service, or any other minor cost associated with that.

5. Communication Expenses

Communication expenses cover bills for landlines, internet services, and mobile phones. Proper tracking of these expenses can help you to maintain control over the communication budget.

6. Entertainment Expenses

Many companies often conduct activity sessions, sports events, annual picnics, or movies. These are incidental expenses that count in the entertainment category.

How Does a Business Can Handle Incidental Expenses?

Business professionals or financial experts must manage incidental expenses properly. This leads to fraud prevention and helps businesses to keep expenditures under control. No doubt, incidental expenses are small, but they are not avoidable points.

Below are some strategies to handle incidental expenses:

Establishing a Clear Policy

Businesses can easily set up a policy that outlines the conditions of incidental expenses, reimbursement processes, and spending limits.

Per Diem Allowance

Many businesses offer daily allowance (per diem) to cover lodging, meals, and incidentals. These allowances are according to the guidelines of government bodies such as the Internal Revenue Service and General Services Administration. These government bodies set per diem rates each year.

Reimbursement Process

Businesses can opt for reimbursement that enables employees to submit expense reports through sharing receipts. The accounting team reviews these reports and then processes reimbursement.

Utilizing Corporate Credit Cards

Business people can give their corporate credit cards to employees during a business tour. In this case, business professionals can review expenses and track spending easily.

What Are the Benefits of Incidental Expenses Management?

It is compulsory to manage incidental expenses. In addition to that, you must also be aware of their benefits.

• A better understanding of expense management helps refine the company’s financial health.
• It prevents fraud and financial leakage that could trouble the business.
• Professionals can have better forecasting of finances enabling them to cut down unnecessary costs.
• It enhances cash flow and professionals make better decisions.

What Challenges Do Professionals Face During Incidental Expense Management?

Do you think it’s easy to manage incidental expenses? Not really! Financial experts experience many challenges while managing incidental expenses.

1. Tough to Tack Correctly

As we know incidental expenses are unplanned and unpredictable. Additionally, costs vary according to the situation during business travel. In some cases, there is a lack of proper receipts to prove the expense. All these points make it difficult to track the correct expense data.

2. Incorrect Data

In the case of receipt absence, employees fill up the details manually which is prone to errors. This again leads to unnecessary issues for business professionals.

3. Expense Fraud

Employees can easily submit fraudulent expense reports due to a lack of receipts. They can claim a false amount to take a high amount of reimbursement. Ultimately, businesses suffer from the fraud action.

What Are the Tips to Follow for Better Incidental Expenses?

Managing and better managing are two different terms. When it comes to incidental expense management, you must go for better management by following the below tips:

1. Set Up a Proper Process

Business professionals must establish a systematic process to deal with incidental expenses. There should be a proper process flow that includes reviewing expense receipts and approving them. This process should be aligned with company policy.

2. Budget Setup

Always set up a budget for incidental expenses after reviewing the past data. Categorize the incidentals into different expense types to allocate the correct portion of the budget.

3. Opt for Automation

Managing incidental expenses through a manual concept can be dangerous, as it can bring errors. Choosing the right accounting software can make the process simple, fast, and accurate. Professionals can save time and gain accuracy through automation.

4. Establishing Travel Guidelines

Setting up travel guidelines is necessary to control incidental expenses. The common approach is to adopt a per diem allowance, which acts as a threshold limit on spending. The employee will pay out of pocket once this allowance is crossed.

Taxes and Deductions for Incidental Expenses

Business professionals and individuals can manage incidental expenses through taxes and deductions. However, these are according to local tax laws which may vary from country to country.

For Business

Certain taxes like sales tax, income tax, and payroll taxes are applicable to incidental expenses. Business professionals can opt for some deductions like advertising costs, equipment depreciation, and work-related expenses in order to reduce taxable income.

For Individual

Individuals are eligible for tax implications for certain expenses they bear for business operations. Company-related traveling or any office expenses that an employee performs from his pocket come under this. However, employees must share a valid receipt to ease the tax process.

Summing Up

Incidental expenses are small but hold a valuable position in business accounting. Thus, the financial team should manage them carefully. Proper management of these expenses helps the business to improve its budget performance, optimize tax efficiency, and enhance decision-making.

Frequently Asked Questions