Monday, December 2, 2013
TO PER DIEM OR NOT TO PER DIEM – THAT IS THE QUESTION
The federal government provides special “per diem” rates for meals and incidental expenses and lodging to use in lieu of claiming actual expenses when deducting the costs of a business trip.
These rates are based on the city where you “lay your head” at night. If your business meeting is in New York City, but you stay overnight at a hotel in New Jersey to get a lower room rate, you would use the city or county in New Jersey to determine the appropriate per diem amount.
Rates are set by fiscal year, effective October 1. You can click here to find the appropriate per diem rates.
There is a per diem rate for lodging and a separate one for meals and “incidental expenses”. Incidental expenses include fees and tips to porters, baggage handlers, maids, etc. and travel for meals – it does not include local travel for meals laundry costs. The special per diem rate for incidental expenses only (for example when meals are provided by someone else) is $5.00.
Under IRS Rev Proc 2007-63 self-employed taxpayers and employees claiming unreimbursed employee expenses cannot use the per diem for lodging. They must claim the actual lodging expenses paid - they can only use the meal and/or incidental expense per diems. The lodging per diem is only for employers reimbursing employees for business travel.
You can choose to deduct either the actual expenses or the government per diem rate. You can decide whether to deduct actual expenses or the per diem allowance on a trip-by-trip basis, but you must use the same method for all days within a single business trip. If you elect to use the per-diem allowance you can claim 75% of the per diem amount on the first and last day of the trip.
As readers know, I recently attended the annual NATP year-end update symposium in Atlantic City NJ. The per diem for Atlantic City is $66.00. I kept track of my actual meal and tip expenses during the trip, which totaled about $260.00. I arrived in AC on Sunday and left on Thursday. 4½ days (Monday, Tuesday, Wednesday = 3 days, and Sunday and Thursday = 2 days @ 75% = 1½ days) at the per diem rate of $66.00 is $297.00. Obviously I will claim the per diem rate. As an added bonus, by doing this I do not have to save receipts for my meals.
If I go back to AC for more classes in December, and my total meal and tip costs for a 5-day trip were $302, I would claim the actual expenses for this trip.
Regardless of which method you choose, only 50% of qualifying business meals (including the per diem for meals and incidental expenses) are deductible.