Travel Per Diem Rates
- By Rick Sawyer
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- 12 Dec, 2018
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. . . and the Tax Cuts and Jobs Act
As an employee of your company, you should be aware that the Internal Revenue Service (IRS) has updated per diem rates effective October 1, 2018. These new rates are to be used starting October 1st for all per diem (Latin for each day) allowances paid to employees who travel for business.
Per diem rates are a fixed amount paid to employees to compensate for lodging, meals, and incidental expenses incurred when traveling on business rather than using actual expenses.
The per diem rate can be used by employers to compensate employees for combined lodging and meal costs, or for meal costs alone. Per diem payments are not considered part of the employee’s wages for tax purposes if the payments are equal to or less than the federal per diem rate and the employee provides an expense report.
If the employee doesn't provide a complete expense report, the payments will be taxable to the employee. Similarly, any payments that exceed the per diem rate will also be taxable.
A Significant Change from Preceding Years
Prior to 2018, employees could deduct most unreimbursed job expenses on their Schedule A as miscellaneous deductions. But the recent Tax Cuts and Jobs Act eliminated itemized deductions, including most of those for unreimbursed travel and mileage.
If you’re an employee and have previously deducted travel and/or mileage for unreimbursed business expenses, you should schedule a discussion with your employer and ask that your travel expenses by reimbursed using the new per diem rates. With the large number of changes in the tax law, it’s possible your employer is unaware of the financial burden you’ll experience by no longer being able to deduct travel expenses.
If you’re an employer, you need to be aware that choosing to not reimburse travel and mileage expenses can have a significant negative impact on your employee relations. Reimbursing your employees for business travel is a legitimate business expense.
No Change for Self-Employed Taxpayers
The new tax law allows self-employed taxpayers to still deduct business-related expenses. However, they can only use the per diem rates for meal costs. The bottom line for self-employed individuals is that you must continue to keep date, expense and amount-precise records of your expenses.
Other Exceptions
Members of a reserve component of the Armed Forces of the United States, state or local government officials paid on a fee basis, and certain performing artists may still deduct unreimbursed employee travel expenses as an adjustment to income on the front page of the 1040.
Your CPA or tax advisor can guide you through these deductions.
Per Diem Rates
Per diem rates are generally standard throughout the country except for several specified high-cost localities like New York City and Los Angeles. There are also some other locations that are designated seasonal high-cost localities including places like Aspen, Colorado and Boca Raton/Delray Beach/Jupiter, Florida.
You can find the entire list of high-cost localities, together with other per diem information, in Notice 2018-77 (downloads as a pdf).
To find the federal government per diem rates by the location name or zip code, visit the General Services Administration (GSA) website.
One area we’ve found challenging to some of our clients over the years is providing the right documentation to substantiate sizable charitable contributions.
The IRS recently published final regulations clarifying several aspects of charitable gift reporting:
Donations of cash
For contributions of $250 to $500
To claim a cash contribution of $250 to $500, you must obtain a contemporaneous (originating at the time as the gift) written acknowledgement from the recipient of the donation.
For contributions of more than $500
To claim a monetary gift of $500 or more, you need either a bank record or a written communication with the recipient showing the name of the recipient, the date of the contribution, and the amount of the contribution.
Donations of property
To claim a donation of property valued under $250, you must receive a receipt from the recipient or keep “reliable records.” (We encourage getting a receipt.)
To claim non-cash contributions valued between $250 and $500, you’re required to obtain a contemporaneous written acknowledgment.
To claim a donation valued between $500 but less than $5,000, you must obtain a contemporaneous written acknowledgment from the recipient and file Form 8283 using Section A, Donated Property of $5,000 or Less and Publicly Traded Securities.
To claim a non-cash donation valued between $5,000 and $500,000, in addition to a contemporaneous written acknowledgment, you must obtain a qualified appraisal and file Form 8283 using Section B, Donated Property Over $5,000 (Except Publicly Traded Securities).
To claim a non-cash contribution of $500,000 or more, you must meet the requirements for a contribution of $5,000 to $500,000 and attach the qualified appraisal to your return.
What’s a "qualified appraisal?"
The IRS regulations define a "qualified appraiser" as an individual with "verifiable education and experience in valuing the relevant type of property for which the appraisal is performed" (Regs. Sec. 1.170A-17(b)(1)).
We get it. Your career demands are too hectic day-to-day for you to worry about the end of your fiscal year . . . until we get to the end of your fiscal year. And since most of our clients operate as small businesses, their fiscal year usually coincides with the calendar year.
That means you’re simultaneously faced with booking and using your talent, dealing with holiday hassles, and getting your paperwork in order so your accountant can prepare your tax returns (personal and business).
Here are a few year-end tax prep tasks every client can do right now to help assure a trouble-free tax preparation and filing experience for 2018.
Get organized
CPAs generally charge by the hour. That means, if you bring us all your receipts in a shoe box, for example, your tax return will be done, but it will take us longer to sort through everything that’s in the shoe box. Just as in your business, time is money.
It’s best if all your invoices and receipts are recorded in the same format in the same software program or spreadsheet.
Get reconciled
Bank reconciliation should be ongoing on a weekly basis throughout the year, but we realize it’s one of those things that gets back-burnered in the pressure and fast-pace of your professional life.
What we’re looking for is documentation of a bank transaction that corresponds with each entry in your accounting system.
Evaluate quarterly payments
If you make estimated tax payments quarterly, check to see how they correspond to the actual end-of-year numbers you achieved. The process will give you a good idea of the amount you’ll get back or how much you’ll owe this year.
And it will give your accountant benchmarks that will come in handy while preparing your tax return.
Review your W-9s
If you hire freelancers, you must issue 1099 forms to every person you paid at least $600 to for contract labor. If you didn’t anticipate paying him or her that threshold amount, you may have overlooked having them complete a W-9 form at the time. You can still have any missing W-9s completed before the end of the calendar year.
Call your CPA today
For a successful CPA practice, every day during tax season is like Black Friday to retailers. We’re deadline driven to get every tax return prepared as accurately and efficiently as possible.
The sooner we can sit down with our clients to review appropriate records and start preparing the return, the more likely this year’s tax filing project will be smooth and stress free.
