What Is IRS Publication 463?

IRS Publication 463 Explained in Less Than 5 Minutes

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IRS Publication 463 is a guide published by the IRS to provide information to business owners about deductions for travel, meals, gifts, and vehicle expenses incurred as part of their business.

Definition and Example of IRS Publication 463

IRS Publication 463 is a guide published by the IRS to provide information to business owners about how to treat travel, meals, gifts, and vehicle expenses for tax purposes.

For example, if a business owner traveled out of state for a three-day conference to promote their business but also spent the last day of their trip sightseeing for pleasure, they can consult IRS Publication 463 to determine how much, if any, of the travel and meals expenses they incurred on their trip are deductible.

How IRS Publication 463 Works

IRS Publication 463 has six chapters:

  • The first four chapters cover the tax rules for deducting travel, meals and entertainment, gifts, and transportation expenses.
  • The fifth chapter covers how to keep adequate records to document these expenses.
  • The sixth chapter covers how to report the expenses covered by the publication on one’s tax return or other tax documents.

Chapter 1: Travel Expenses

Chapter 1 contains helpful information for taxpayers who incurred travel expenses while traveling away from their tax home for business purposes and want to know how to deduct them for tax purposes.

Information covered in this chapter includes:

  • The definition of travel expenses for tax purposes
  • How to determine where your tax home is (this is not necessarily your family home, but your regular place of business and its surrounding area)
  • What travel expenses are deductible

In general, transportation, bagging or shipping, car-related expenses during travel, and lodging and meals are considered deductible travel expenses. 

Chapter 2: Meals and Entertainment Expenses

Chapter 2 covers deductions for meals and entertainment expenses.  While entertainment expenses are generally no longer deductible, meals expenses incurred in your business may be fully or 50% deductible as long as they are not considered “lavish.”

Since entertainment expenses are non-deductible, most of Chapter 2 covers determining whether a meal expense is deductible and, if deductible, to what extent—fully deductible or 50% deductible.

There are some exceptions to the non-deductible entertainment rule, such as any expenses associated with a recreational activity like a holiday party or employee BBQ, or those related to attending a business meeting or convention of certain exempt organizations.

Chapter 3: Gifts Expenses

Chapter 3 covers the deductibility of gifts given in the course of one’s business.

This is the shortest chapter in the publication since the tax rules for deducting business gifts are relatively straightforward: In general, a taxpayer’s deduction for business gifts is limited to $25 per recipient per year.

There are some exceptions to this rule that are indicated in this chapter. For instance, mass-produced items bearing the name of the taxpayer that cost $4 or less would not be considered gifts subject to the $25 limit.

Chapter 4: Transportation Expenses

Chapter 4 covers the rules for deducting business transportation expenses.

The difference between the transportation expenses covered in Chapter 4 and the travel expenses covered in Chapter 1 is that, in general, transportation expenses are incurred within one’s tax home while travel expenses are incurred in leaving one’s tax home for business purposes.

Information covered in this chapter includes:

  • The definition of transportation expenses
  • The two methods—standard mileage and actual expenses—for deducting vehicle expenses
  • Vehicle depreciation

You cannot deduct any transportations costs associated with commuting from home to work, such as taking a bus, trolley, subway, taxi, or driving your car. 

Chapter 5: Recordkeeping

Chapter 5 covers how to adequately keep records for the expenses covered by the publication, what you can do if you have incomplete records, when to separate payments in one’s records, and how long taxpayers should keep records and receipts.

IRS Publication 463 includes a weekly traveling expense record you can use to document deductible business expenses related to transportation.

Chapter 6: Reporting

Chapter 6 covers how the expenses covered in Publication 463 should be reported on tax returns and other tax documents.

Information covered in this chapter includes:

  • Where business owners should report the expenses covered in this publication on their tax return
  • How certain kinds of employees, such as Armed Forces reservists, government officials, and qualified performing artists, can report unreimbursed business expenses on Form 2106
  • How reimbursements are reported to employees, both with and without an accountable plan

Where To Get IRS Publication 463

The IRS has provided taxpayers multiple ways to obtain IRS publications, including Publication 463:

  • The publication can be downloaded on the IRS website.
  • A hard copy can be obtained from an IRS Taxpayer Assistance Center.
  • It can also be obtained by mail by submitting a request online or by calling 800-TAX-FORM (800-829-3676).

How To Read IRS Publication 463

IRS publications are written for the average taxpayer, who will likely find these publications much easier to read than the Internal Revenue Code.

In addition to being divided up into six straightforward chapters, Publication 463 also has an index at the very end. If you are looking for information on a specific topic, check this index for the topic you are looking for.

That said, keep in mind that IRS publications are not the ultimate authority on income tax matters; the Internal Revenue Code is.

Key Takeaways

  • IRS Publication 463 is a guide the IRS has published on how to treat and report travel, meals, gifts, and vehicle expenses.
  • IRS Publication 463 is divided into six chapters. The first four chapters cover specific rules pertaining to certain kinds of expenses, the fifth chapter covers recordkeeping for these expenses, and the sixth chapter covers how to report these expenses.
  • Similar to other IRS publications, IRS Publication 463 is written in plain English.
  • IRS Publication 463 is not the ultimate authority on the expenses it covers; the tax code is.