MEALS

Meals and Per Diem Tax Deduction

If you are traveling for business did you know that instead of deducting your actual meal expenses you you can deduct meal and incidental expenses using a Per Diem rate? Many entrepreneurs choose to use the Per Diem rate to deduct meal and incidental expenses because the record keeping requirements are less stringent than the actual method. Before deducting your meal and incidental expenses, you can calculate your deduction both ways to see if using the actual method or one of the Per Diem methods will be more favorable.

AUTHOR

Jane writes children's books and frequently travels to book fairs around the country to promote her books. In 2018, Jane traveled to Tucson, Arizona for five days (two travel days, three full days) to attend a book festival. While traveling she spent $200 on meals, $100 ($200 * 50%) of which would be deductible using the actual method. Using the Per Diem rate for Tucson, Jane could deduct $141.75 (($63 * 3 full days * 50% limit) + ($63 * 75% travel limit * 2 travel days * 50% limit)). Since the Per Diem rate for her trip would result in a higher deduction, Jane could deduct the Per Diem rate instead of the 50% of her actual meal costs.

SPEAKER

Francisco is a professional speaker who gives talks on world peace at universities located across the United States. Since Francisco is constantly traveling he always uses the Per Diem rate to calculate his meal and incidental expense deduction so he doesn't have to keep track of all of his recipes. Instead, he simply has a log with the time, place and business purpose of each of his trips.

ENTREPRENEUR

Kyle is a sole proprietor base in Denver, Colorado who makes custom motorcycles. Next month he is planning to visit Las Vegas, Nevada for four days to attend a motorcycle convention. Since Kyle hates receipts, he is planning on using the meal and incidental expense Per Diem rate to calculate his deduction. However, even though Kyle is using the Per Diem rate to deduct his food and incidental expenses, he needs to hold on to the itemized receipt from his hotel since Schedule C filers cannot use the lodging Per Diem and instead only can deduct actual lodging expenses.

TASKER

Elaine is a part-time tasker from Philadelphia, Pennsylvania who specializes in landscaping. In 2018 she traveled to the Washington, D.C. metro area for to purchase some heavy equipment. Rather than use federal Per Diem rate to calculate the meal deduction for her trip, she used the high-low method. Science Washington, D.C. is a high-cost city listed in IRS Notice 2017-54 , she would be able to deduct $85 (($68 * 1 full day * 50% limit) + ($68 * 75% travel limit * 2 travel days * 50% limit)) for her three day trip (two travel days, one full day). Note however that if she visited any city not classified as "high-cost", her deduction using the high-low method would have been limited to $71.25 (($57 * 1 full day * 50% limit) + ($57 * 75% travel limit * 2 travel days * 50% limit)).

PROFESSIONAL SERVICES

Kayla is a self employed antitrust lawyer who recently returned from a business trip to Hong Kong. While she was away she forgot to hold on to her meal receipts. When Kayla prepares her Schedule C, rather than deduct the actual cost of the meals from her trip, which she can't substantiate, she can visit the State Department website and obtain the Per Diem rate for Hong Kong to calculate her line 24b meals deduction.

WHAT TO KNOW BEFORE USING MEALS PER DIEM

  • The meal and incidental expense Per Diem rates vary by county, however, the 2018 rates average $93 within the continental United States (CONUS). Note that the first and last day you travel the Per Diem is generally calculated at 75% of the full rate. Refer to General Services Administration (GSA) to obtain the specific Per Diem rate for the destination you will be traveling to. If you are traveling abroad, you will be able to find your Per Diem rate by visiting the State Department website.
  • Remember that similar to the rules for deducting actual business meal expenses, you can only deduct 50% of the meal and incidental expense Per Diem rate.
  • If you are a sole proprietor / self employed, you can only use the Per Diem rate for meals and incidental expenses. You cannot use the Per Diem rate to deduct your lodging expenses, however, you can still deduct your legitimate business lodging expenses using the actual method. Note that if you are are paying a reimbursement to an employee, volunteer or partner, the lodging Per Diem exclusion would not apply.
  • If you don't want to look up the standard Federal per diem rate for the destination you are visiting, you can instead use the high-low method to calculate your Per Diem rate. Using the high-low method, if you are visiting a high-cost destination you would take the high rate, a low cost destination the low rate. 2018 high rate cities can be found in IRS Notice 2017-54 (link below).
  • If you use the Per Diem rate to calculate your deductible travel meal and incidental expenses, all you need is a record of the time, place and business purpose of your trip.
  • Since Per Diem rates are set on October 1st of the previous year, during the last three months of the previous year you can elect to use the updated rate or the current year rate, as long as you apply what ever you choose consistently for the rest of the year (before you switch to the new rate).

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