Thursday, October 1, 2015


The IRS recently released the annual update of the special per diem rates, effective October 1, 2015 to September 30, 2016, taxpayers can use to claim a tax deduction for lodging, meals, and incidental expenses when traveling away from home for business.

These per diems can be used by employers to reimburse employees for business travel, and the per diems for meals and incidental expenses can be used by unreimbursed employees and the self-employed to claim a tax deduction for business travel. 

Click here to find the per-diem rates for travel within the continental United States for any fiscal year

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 claim the actual cost.  And corporations cannot use the per diem that includes lodging for owner-employees with more than 10% ownership, based on direct or indirect ownership. 

Similar to how the Standard Mileage Allowance works for business use of your automobile, you can elect to deduct either the actual amount of your out of pocket expenses for meals and “incidental” expenses while away from home on business, or claim the appropriate federal per diem allowance determined by the location of the trip.  If you claim the per diem allowance you do not have to save receipts for actual expenses.

The per diem rates are based on the city where you “lay your head” at night. If your business meetings are in New York City, but you stay overnight at a hotel in New Jersey to get a lower room rate, you would use the New Jersey location to determine the appropriate per diem amount.

On the first and last day of a business trip you claim 75% of the per diem amount, unless you can show you leave before breakfast on the first day and return after dinner on the last.

You can decide whether to deduct the per diem rate or actual expenses on a trip by trip basis, but you must use the same method for all days within any single business trip. You can use the actual expenses when attending a conference in New York City in May and the per diem rate for an August convention in Las Vegas.

The per-diem rates for FY 2016 (10/1/15 – 9/30/16) are slightly lower than those for FY 2015 (10/1/14 – 9/30/15).  I did a check of the Meal and Incidental per-diems for Atlantic City NJ and Philadelphia PA.  The rate for these cities for FY 2015 was $66, but the rate for FY 2016 is $64.

Incidental expenses include fees and tips given to porters, baggage carriers, hotel staff, and staff on ships. The per-diem rate for the incidental-expenses-only deduction for FY 2016 remains unchanged at $5 per day for any locality of travel.

The special meals and incidental expenses per-diem for transportation workers for FY 2016 is $63 for any locality of travel in the continental United States and $68 for any locality of travel outside the continental United States.  These are up from the FY 2015 rates of $59 and $65.  A transportation worker is an employee or self-employed taxpayer whose work directly involves moving people or goods by airplane, barge, bus, ship, train, or truck, and requires the taxpayer to travel away from home to areas with different federal per-diem rates during a single trip.

Of course only 50% of the per-diem for meals and incidental expenses are deductible.  Taxpayers subject to the Department of Transportation hours of service rules can deduct 80%.


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