- That your trip required "substantial sleep" (usually overnight) before returning.
- The trip's business purpose.
- That over half of the working time of a majority of the days of the trip was used for business.
Please continue reading to get a quick summary of your options to calculate the amount of the deduction you can claim for 2011-12 if your travel meets these requirements ...
Your first choice is whether to keep detailed records and receipts for every meal or incidental expense item, or use per diem (daily) rates. You need to make this decision for all the business travel in a tax year. Either way, you are generally allowed to deduct 50% of the cost, whether determined using the actual cost or the per diem rate method. (However, if you work in the transportation industry, you have a separate rule that is explained below)
Actual costs include the meals themselves (and tips), plus expenses the IRS considers incidental (quoted from IRS Publication 17, Section 26):
- Fees and tips given to porters, baggage carriers, bellhops, hotel maids, stewards or stewardesses and others on ships, and hotel servants in foreign countries,
- Transportation between places of lodging or business and places where meals are taken, if suitable meals can be obtained at the temporary duty site, and
- Mailing costs associated with filing travel vouchers and payment of employer-sponsored charge card billings.
Please note that the IRS also says that:
- Incidental expenses do not include expenses for laundry, cleaning and pressing of clothing, lodging taxes, or the costs of telegrams or telephone calls
Accordingly, you can choose to claim the appropriate per diem rate, and separately claim actual costs for laundry, lodging taxes, and telephone calls.
Special Transportation Industry Rules
IRS rules define a transportation industry worker as one whose duties:
- Directly involves moving people or goods by airplane, barge, bus, ship, train, or truck, and
- Regularly requires you to travel away from home and, during any single trip, usually involves travel to areas eligible for different standard meal allowance rates.
Currently, the IRS allows those working in the transportation industry to deduct 80% of the cost of meals and incidentals. They can use the actual cost method, the same per diem rates available to other industries explained below, or a flat $59 per day within the continental United States (and $65 per day elsewhere). Because of the extensive additional record keeping that would be required, most transportation industry workers choose to use this flat rate for all their travel in a tax year.
Per Diem Rates
IRS Publication 1542 explains your choice of two methods to claim per diem rates:
You can use the High/Low method, which divides all locations in the United States into two categories. There is a list of specific locations there that qualify for the "high" rate of $65 per day for meals and incidental expenses. Travel to any other location qualifies for the "low" rate of $52 per day.
Or you can scroll through the rest of the publication to find each locality you spent the night in for business, and use the applicable rate for that place. Again, you have to be consistent for the entire year with your choice of the high/low method, or the specific location method.
You will note that IRS Publication 1542 also mentions per diem rates that include lodging, both using the high/low and specific location methods. You can use these in lieu of actual costs for lodging as well as meals and entertainment, but in general if you have ownership or control of your business you can only use the meal and incidental per diem rates and then claim actual lodging expenses.
Another source of allowable per diem rates is at www.gsa.com, which is the source the IRS uses when updating Publication 1542.
What Works For You?
Please let me know whether you prefer using one of the per diem rates or the actual cost method. How difficult is is for you to maintain the records required by the actual cost method? Which method gives you the higher deduction? Your answers will help all readers, thanks in advance for your comments and shared experiences!