Allowable Expenses: Definition, Criteria & Common Categories

An allowable expense is a cost that meets two fundamental criteria: it is permitted by law or regulation and it does not exceed established policy limits. This concept is central to government contracting, grant management, corporate reimbursement policies, and tax compliance.

Core Criteria

• Legally permissible: The expense type must be authorized under applicable statutes, regulations, or grant terms (e.g., FAR Part 31 for federal contracts, OMB Uniform Guidance for grants).
• Within policy limits: The amount must fall within caps, per diem rates, or reasonableness standards set by the organization or funding source.

Common Allowable Expense Categories

Travel Costs

Transportation (airfare, mileage, rail), lodging, meals (per diem or actuals with receipts), and incidentals (tips, parking, internet) for approved business or medical travel.

Relocation Costs

Expenses for moving an employee or grantee for approved reasons: household goods shipment, temporary housing, house-hunting trips, and lease-breaking fees—subject to distance and policy thresholds.

Moving & Storage

Packing, crating, shipping, unpacking, and short-term storage of household goods. Long-term storage is rarely allowable without explicit approval.

Verification & Compliance

Organizations typically require itemized receipts, purpose documentation, and supervisory approval. Costs are reviewed for reasonableness (would a prudent person spend this amount?), allocability (is it chargeable to the specific award/project?), and consistency with established policies.

Key Takeaway

An expense isn't allowable just because it was incurred—it must be both authorized and within bounds. Understanding the governing regulations and your organization's specific policies is essential for compliant reimbursement and audit readiness.