With so many Americans conducting business outside their office, the recent IRS announcement of the 2015-2016 business travel expense rates will certainly impact many. In 2011 alone, American businesspeople took a total of 445 million trips for work-related matters, (source: NYTimes.com 05/03/12) and that figure grows steadily each year.
On Wednesday, the IRS issued its annual update of special per-diem rates for use in substantiating certain business expenses taxpayers incur when traveling away from home in 2015 and 2016. (Notice 2015-63). The notice provides the transportation industry meal and incidental expenses rates, the rate for the incidental-expenses-only deduction, and the rates and list of high-cost localities for purposes of the high-low substantiation method.
“Most people tend to track expenses incurred for business and take the deduction. Folks have become savvy at asking for and keeping record of their receipts. So, exceeding the per diem threshold is effortless for them. On the flip side, by following the rates of per diem reporting, one would not have to keep their receipts nor track expenses, but simply prove they incurred business travel expense on the particular date noted,” said Howard Kass, CPA, AEP, partner and head of the firms Tax Services department.
As reported in the Journal of Accountancy, four years ago, the IRS provided, in Rev. Proc. 2011-47, the general rules for using a federal per-diem rate to substantiate the amount of ordinary and necessary expenses for lodging, meals, and incidental costs paid or incurred for business-related travel away from home. Taxpayers using the rates and the list of localities in Notice 2015-63 must comply with the rules in Rev. Proc. 2011-47.
The updated rates are effective for per-diem allowances paid to any employee on or after Oct. 1, 2015, for travel away from home on or after that date, and supersede the rates in Notice 2014-57, which provided the rates for Oct. 1, 2014, through Sept. 30, 2015.
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Since 2012, incidental expenses have included only fees and tips given to porters, baggage carriers, hotel staff, and staff on ships. The per-diem rate for the incidental-expenses-only deduction remains unchanged at $5 per day for any locality of travel.
The special meals and incidental expenses rates for taxpayers in the transportation industry are $63 for any locality of travel in the continental United States and $68 for any locality of travel outside the continental United States.
High/low substantiation method
For purposes of the high/low substantiation method, the per-diem rates are $275 for travel to any high-cost locality and $185 for travel to any other locality within the continental United States. The amount of these rates that is treated as paid for meals for purposes of Sec. 274(n) is $68 for travel to a high-cost locality and $57 for travel to any other locality within the continental United States. The notice contains a list of the localities that are high-cost localities (localities that have a federal per-diem rate of $230 or more) for all or part of the calendar year.
This notice is effective for per diem allowances for lodging, meal and incidental expenses, or for meal and incidental expenses only, that are paid to any employee on or after October 1, 2015, for travel away from home on or after October 1, 2015. For purposes of computing the amount allowable as a deduction for travel away from home, this notice is effective for meal and incidental expenses or for incidental expenses only paid or incurred on or after October 1, 2015. (See sections 4.06 and 5.04 of Rev. Proc. 2011-47 for transition rules for the last 3 months of calendar year 2015).
How does this affect you? “People trade convenience (per diem) for a potentially lower deduction (itemized receipts); it is a good idea to meet with your tax advisor to ensure which reporting method is in your best interest,” said Kass.
Understanding tax laws can be tricky. Our tax services department can help you with your tax strategy, ensure you are receiving the tax credits due you and keep you updated on the changes that could potentially affect your tax burden. Contact us via email at email@example.com or phone 216.831.0733 for your no cost consultation.
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