Per Diem Meal & Incidental Expenses for Self Employed
mmurrell
consulting and project management services. He wants to structure his
business invoices to his clients such that he can deduct 100% of his
M&IE. His business is organized as a single memeber LLC, and he has a
great deal of travel away from home. He also has some international
travel expenses.
Please verify my understanding that those M&IE that are accounted to,
invoiced to, and paid by the taxpayer's client are deductible at 100%
on the tax payer's schedule C. In contrast, those legitimate business
M&IE that are in town or out of town, but not accounted to or invoiced
to a client (such as trying to secure a new client or contract) are
only deductible at 50%.
1. Does his invoice have to itemize on separate lines for his M&IE,
or does is just need to be in his contract with the client that all
his M&IE are to be reimbursed?
2. Can he invoice his client the CONUS federal per diem rate for M&IE
and then deduct that exact same M&IE on his schedule C at 100%?
Thereby reducing his need to keep track of actual receipts.
3. Can he invoice his client for an actual amount for M&IE and then
deduct the CONUS per diem M&IE on his schedule C at 100%?
4. Can he deduct the INTERNATIONAL federal per diem rate for M&IE on
his schedule C at 100% if he invoices his international client for the
same? Or does he have to keep actual receipts and records for his
international M&IE. Because his internatinal client will not be
responsible for the ultimate 50% limitation.....will that disqualify
the taxpayer from deducting 100% on his return?
Thanks so much for any help you can provide!
--
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Arthur Kamlet
I've always assumed M&IE ae for employees and not contracors.
A contractor has to account for all expenses separately, and
those go on Sch C. Thee is no per diem or fixed schedule C deduction
amounts. Provable ordinary and necessary expenses go to C.
If the facts & circumstances of a meal place it in the 50%
category, then it's a 50% item.
--
ArtKamlet at a o l dot c o m Columbus OH K2PZH
mmurrell
> I've always assumed M&IE ae for employees and not contracors.
>
> A contractor has to account for all expenses separately, and
> those go on Sch C. Thee is no per diem or fixed schedule C deduction
> amounts. Provable ordinary and necessary expenses go to C.
>
> If the facts & circumstances of a meal place it in the 50%
> category, then it's a 50% item.
>
>>
Thank you for your reply. I feel quite certain the federal per diem
is available to self employeed individuals. Here is a quote from
Internal Revenue Bulletin: 2008-41
"Section 4.03 Optional method for meal and incidental expenses only
deduction. In lieu of using actual expenses in computing the amount
allowable as a deduction for ordinary and necessary meal and
incidental expenses paid or incurred for travel away from home,
employees and self-employed individuals who pay or incur meal expenses
may use an amount computed at the federal M&IE rate for the locality
of travel for each calendar day (or partial day) the employee or self-
employed individual is away from home. This amount will be deemed
substantiated for purposes of paragraphs (b)(2) and (c) of § 1.274-5,
provided the employee or self-employed individual substantiates the
elements of time, place, and business purpose of the travel for that
day (or partial day) in accordance with those regulations."
My question is can a self employed taxpayer account to and invoice
their client this per diem amount in order for it to be 100%
deductible rather than subject to the 50% limitation.
Alan
>>
>> I've always assumed M&IE ae for employees and not contracors.
>>
>> A contractor has to account for all expenses separately, and
>> those go on Sch C. Thee is no per diem or fixed schedule C deduction
>> amounts. Provable ordinary and necessary expenses go to C.
>>
>> category, then it's a 50% item.
>>
>>>
>
> Thank you for your reply. I feel quite certain the federal per diem
> is available to self employeed individuals. Here is a quote from
> Internal Revenue Bulletin: 2008-41
>
> "Section 4.03 Optional method for meal and incidental expenses only
> deduction. In lieu of using actual expenses in computing the amount
> allowable as a deduction for ordinary and necessary meal and
> incidental expenses paid or incurred for travel away from home,
> employees and self-employed individuals who pay or incur meal expenses
> may use an amount computed at the federal M&IE rate for the locality
> of travel for each calendar day (or partial day) the employee or self-
> employed individual is away from home. This amount will be deemed
> substantiated for purposes of paragraphs (b)(2) and (c) of § 1.274-5,
> provided the employee or self-employed individual substantiates the
> elements of time, place, and business purpose of the travel for that
> day (or partial day) in accordance with those regulations."
>
> My question is can a self employed taxpayer account to and invoice
> their client this per diem amount in order for it to be 100%
> deductible rather than subject to the 50% limitation.
>
Yeah, he can bill the client whatever he wants. Bill him twice the per
diem rate if he wants. Whether or not the taxpayer's client will pay it
depends upon the terms of their agreement on expenses.
And... yes he can use the standard meal allowance for his tax deduction
rather than his actual expenses as long as he keeps a record of the
time, location and business purpose of the trip.
--
Alan
http://taxtopics.net
D. Stussy
news:idejm2$daf$1...@news.eternal-september.org...
However, it is inappropriate to exclude the reimbursement from income while
taking the deduction.
Alan
client for services performed in N.M. is subject to gross receipts tax.
Mark Bole
>>>> My question is can a self employed taxpayer account to and invoice
>>>> their client this per diem amount in order for it to be 100%
>>>> deductible rather than subject to the 50% limitation.
>> However, it is inappropriate to exclude the reimbursement from income
>> while
>> taking the deduction.
>>
> That's a given. And.... here in New Mexico, the gross receipts from the
> client for services performed in N.M. is subject to gross receipts tax.
>
Pub 463 has a section specifically about reimbursements to independent
contractors (excerpts below). In previous discussions here, it was
proposed that if the client takes the 50% limit, the sole proprietor
does not have to, and may not even have to include the reimbursement in
gross receipts?
The client does not have to include accounted-for reimbursements in
1099-MISC reporting, so I think the contractor also does not have to
include in gross receipts. (and of course, if the reimbursement is not
included in income, the expense would not be included in deductions --
it simply would not show up at all on the Schedule C or any 1099-MISC
involving the contractor).
The pub is not authority, of course....
===[quote from Pub 463]============
"Rules for Independent
Contractors and Clients
This section provides rules for independent con-
tractors who incur expenses on behalf of a client
or customer. The rules cover the reporting and
substantiation of certain expenses discussed in
this publication, and they affect
*** both independent contractors and their clients or customers ***
[emphasis added]
You are considered an independent contractor if you are self-employed
and you perform services for a customer or client.
Accounting to Your Client
If you received a reimbursement or an allow-
ance for travel, entertainment, or gift expenses
that you incurred on behalf of a client, you
should provide an adequate accounting of these
expenses to your client. If you do not account to
your client for these expenses, you must include
any reimbursements or allowances in income.
You must keep adequate records of these ex-
penses whether or not you account to your client
for these expenses.
If you do not separately account for and seek
reimbursement for meals and entertainment in
connection with providing services for a client,
you are subject to the 50% limit on those ex-
penses. See 50% Limit in chapter 2.
Adequate accounting.
As a self-employed person, you adequately account by reporting
your actual expenses. You should follow the
recordkeeping rules in chapter 5.
How to report. For information on how to
report expenses on your tax return, see
Self-employed at the beginning of this chapter."
[...]
[following is for the client or customer--]
"Contractor adequately accounts.
If the con-
tractor adequately accounts to you for entertain-
ment expenses, you (the client or customer)
must keep records documenting each element
of the expense, as explained in chapter 5. Use
your records as proof for a deduction on your tax
return. If entertainment expenses are accounted
for separately, you are subject to the 50% limit
on entertainment. If the contractor adequately
accounts to you for reimbursed amounts, you do
not have to report the amounts on an information
return."
-Mark Bole
Stuart A. Bronstein
> Pub 463 has a section specifically about reimbursements to
> independent contractors (excerpts below). In previous
> discussions here, it was proposed that if the client takes the
> 50% limit, the sole proprietor does not have to, and may not
> even have to include the reimbursement in gross receipts?
That's what it looks like to me. To the extent you are simply being
reimbursed for out of pocket expenses that you can properly account
for, it's not considered income and need not be reported.
--
Stu
http://downtoearthlawyer.com
Alan
publishes an update every year on this subject. Based on my experiences
when I was in Santa Clara County, CA (Silicon Valley) it worked as follows:
1. Most of the larger employers used an accountable plan for both
employees and ICs that required the submission of an expense account
with actuals. Reimbursement was excluded from wages and compensation.
2. Some of the smaller employers did not want to have to deal with the
paperwork of expense accounts and used a per diem allowance for lodging,
meals and incidentals. The per diem allowance was usaully the federal
rate. This method required the employee or IC to merely account for the
time away, location and business purpose. Reimbursement was excluded
from wages and compensation.
3. A few employers used actuals for lodging and a per diem for meals and
incidentals. The employee or IC was reimbursed for the actual lodging
and was paid a per diem for the number of nights away from home on the
expense account. Reimbursement was excluded from wages and compensation.
#3 requires that lodging be based on actuals (if there was lodging
expense) if the employers wants to use a per diem for M&I expense.
An IC did not bill the employer for travel expenses. The IC and the
employer had arranged in advance how travel would be handled as the
employer needed to comply with IRS rules to get a tax deduction.
Basically it was "I need an expense expense submitted." or "I need you
to account for the days you are traveling away from home." In those
instances where ICs actually billed their expenses, there was no
substantiation and the payment was included on the 1099-MISC as
nonemployee compensation. The IC deducted the expense on Schedule C.
--
Alan
http://taxtopics.net
mmurrell
>
> --
> << ------------------------------------------------------- >>
> << The foregoing was not intended or written to be used, >>
> << nor can it used, for the purpose of avoiding penalties >>
> << that may be imposed upon the taxpayer. >>
> << >>
> << The Charter and the Guidelines for submitting posts >>
> << to this newsgroup as well as our anti-spamming policy >>
> << are atwww.asktax.org. >>
> << Copyright (2007) - All rights reserved. >>
>
> - Show quoted text -
The last sentence reads "The IC deducted the expense on Schedule
C.".....Does the IC deduct his M&IE at 100%, or would he only get the
50% deduction?
Alan
an IC billing the client and not adequately substantiating the expenses.
As such, the IC's meals and entertainment expense would be subject to
the 50% rule.
--
Alan
http://taxtopics.net
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>