Yeend, Castaneda & Flynn, LLP

If you travel away from home for business and stay overnight, you are allowed to deduct certain expenses connected with that travel. This is true whether you are an employee or self-employed.

The deduction that causes most problems and questions from the IRS is the meal and incidental expense deduction.

 

Substantiation Rules

Substantiation (proof) of meals requires the identification of the location, date, time, cost, and business purpose.

If another person is involved, that person must be identified.

A logbook is the easiest way to track this information.

Receipts must be kept to substantiate your deductions.

 

Actual Expense Method

If you claim the actual expense amount for meals, you must provide all of the substantiation requirements listed above.

A deduction deemed lavish or extravagant may be reduced.

If an employee is related to his or her employer (spouse, sibling, lineal ancestor or descendent, more than 10% owner of a corporation, or certain fiduciaries), the actual expense method must be used.

 

Standard Meal Allowance

The standard meal allowance is based on the federal per diem rates for the specific area of travel.

Everyone except certain related employees may use the standard meal allowance. Exceptions are stated under the “Actual Expense Method” section.

The IRS publishes rates for various areas of the U.S. in Publication 1542, Per Diem Rates.

The basic meal and incidental rate is $30 per day unless the area is identified as a high cost area.

If you are traveling outside of the Continental U.S., rates vary widely and you will need to provide your tax preparer with actual dates and locations so he or she can calculate your meal allowance deduction.

If you travel to more than one area in a day, the area where you stop for sleep and rest determines the allowed amount.

 

Incidental Expenses

Laundry and dry cleaning expenses.

Fees and tips for waiters, baggage handlers, and similar service providers.

Taxi fares and telephone costs are deducted separately

Partial Days

If you are away from home overnight, but not for an entire 24-hour period, the standard meal allowance must be prorated for each partial day.

The most common method for calculation is to break the day into six-hour quarters ( midnight to 6 a.m. , 6 a.m. to noon , noon to 6 p.m. , and 6 p.m. to midnight ) and allow a portion of the per diem for each quarter that you are away from home.

Limitations

Allowable deductions include meals away from home overnight or when entertaining a business client.

Whether the amount is determined by actual expenses or using the standard meal allowance, the actual deduction is limited to 50% of the expense.

Transportation Workers

Individuals who are subject to Department of Transportation (DOT) hours of service limitations can deduct a higher percentage of their meal expenses when they are away from home overnight.

 

Limitations for transportation workers are as follows:

2002-2003           65%

2004-2005           70%

2006-2007           75%

2008 & later         80%

 

Individuals subject to the hours of service limitations include certain employees in the following industries:
Airline

Interstate truckers

Bus drivers

Railroad workers

Merchant Marines

 

Limitations

An individual may not use the federal per diem amount for lodging; the deduction must be claimed for actual expenses.

The only exception would be in the case of an employer choosing to reimburse the employee on the per diem (including the high-low rate) basis.

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