Q. I have an S Corp (100% ownership) with about 40 employees including my spouse and myself. I also own a “C” Corp. We do IT consulting for different clients and visit the clients at their sites.
My employees claim per diem travel expenses based on the GSA per diem rates for lodging and meals if they travel more than 100 miles to our client sites from their home base.
I also travel to client sites and in some cases it is more than 100 miles from my home base. I was told by my CPA that as per IRS rules I, as the owner of the S Corp, will not be able to claim per diem.
In my case, I am not only the owner of the S Corp but I am also a consultant who helps clients whose location may be more than 100 miles from my home base.
Can I claim travel per diem expenses for lodging and meals based on the GSA allowance through the S Corp? Is the owner allowed to take per diem via the C Corp if the S Corp option is not possible?
A. An employer can pay to an employee a per diem allowance for expenses incurred by the employee for travel away from home by using one of the following methods –
* The federal per diem rate for meals, incidentals and lodging.
* The standard meal allowance (federal rate for meals and incidentals).
* The high-low rate,
Under IRS Rev Proc 2007-63, self-employed taxpayers filing a Schedule C and employees who are not covered by an employer reimbursement plan cannot use the per diem method that includes lodging. To claim a deduction for lodging expenses these taxpayers must substantiate the actual cost. The can use the standard meal allowance or incidental expense only per diem.
Similarly, corporate employers cannot use the per diem that includes lodging for owner-employees with more than 10% ownership, based on direct or indirect ownership.
Employers can reimburse employees tax free under an "accountable plan", and claim a deduction for travel expense, only if the employee is “away from home overnight” and the rules for a “temporary assignment” apply. An overnight stay is required.
If an employee is required to stay at a hotel or motel overnight in the course of a business assignment the employer can reimburse the employee tax-free for meals and lodging under an “accountable” plan, and a deduction is allowed for such an expense.
The employer can use the GSA per diem rate for meals and lodging to reimburse the employee in lieu of requiring the employee to substantiate the actual out-of-pocket expenses.
However if the employee owns 10% or more of the stock of the corporation, either directly or indirectly, the deduction for lodging is limited to the actual out-of-pocket expense.
If the actual cost of the hotel room is $100.00 and the allowable GSA per diem lodging allowance is $115.00, the employer can reimburse a non-10% employee, and claim a deduction for, $115.00 for lodging. However the employer can only deduct $100.00 if the employee in question is an owner-employee with a more than 10% ownership.
In your case as 100% owner you can deduct lodging while away from home overnight on business, but your tax deduction is limited to the actual expense for lodging. The Rev Proc does not differentiate between an “S” or “C” corporation. You can, however, deduct the GSA per diem standard meal allowance amount for meals and incidental expenses incurred while away from home overnight.
The use of 100 miles away from home base as criteria has absolutely nothing to do with the ability of an employer to reimburse an employee for business travel. The requirement for an overnight stay still exists.
If an employee travels to a business location, including the office of a client, during the day and returns to his home in the evening (i.e. there is no overnight stay), regardless of the number of miles traveled, no deduction is allowed for lodging. In such a case meals will only be deductible if the specific meal qualifies under the general rules for deducting business meals and entertainment.
If you pay an employee, owner or not, an additional flat per diem amount for traveling 100+ miles from home base and no overnight stay is involved that amount is considered to be additional taxable compensation subject to all payroll taxes and included as wages on the Form W-2.