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Which per diem method saves a fleet more money? Substantiated per diem saves a motor carrier the most money, since the fleet benefits are directly proportional to total per diem paid to drivers.  So how did cent-per-mile per diem become so popular in the trucking industry? Decades before the advent of telematics fleets adopted cent-per-mile per diem for because it was easy to calculate.  However, there is no correlation between the miles a driver travels and meal breaks.

Which per diem method do drivers prefer?

Drivers prefer substantiated special trucker per diem. Why? They eat 3 meals a day regardless of whether they drive 200 or 600 miles. The IRS introduced the Special Transportation Industry substantiated per diem to remedy this issue. In addition it simplified tax compliance for fleets by relying on nights away from home instead of miles traveled. It is also a more accurate reflection of anticipated meal expenses for drivers.

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The most beneficial aspect of substantiated per diem to a motor carrier is that: 

•  Substantiated method yields on average 27% more per diem savings than cent-per-mile or $1 for every $8 of per diem paid to driver over cent-per-mile.
• The average fleet saves about $3,700 per driver in income and employment taxes and workers compensation.
• A fleet employing 5 OTR drivers would save about $5,112 more with substantiated per diem than a $0.11 cpm per diem plan.

Use our Fleet Per Diem Benefit Calculator to learn how much your fleet can save with Per Diem Plus Fleets.

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Will adding a per diem program enhance driver recruiting?

Adding an accountable per diem program for employee drivers is a sure-fire way to enhance driver recruiting and retention. Consider the following:

• The typical over-the-road (OTR) driver averages 127,500 miles annually and is away from home 280 nights a year.
• A driver would receive $18,480 under the substantiated method, but only $12,750 under a cent-per-mile.
• Substantiated method yields on average 45% more per diem than cent-per-mile.
• Substantiated can be earned during a 34-hour restart and unforeseen delays like detention, breakdowns, or weather.
• The average driver will save an additional $1,126 - $1,467 in taxes over cent-per-mile.

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Both substantiated and cent-per-mile per diem must comply with the IRS substantiation by adequate records rules. According to the IRS, "a motor carrier must maintain lrecords to establish "time, place and location" for each per diem event". The Per Diem Plus FLEETS platform satisfies this requirement since it is maintained in such manner that each recording of an element of an expenditure is made at or near the time of the expenditure.

Document retention rules:

• Per Diem Plus FLEETS utilizes a 4-year retention policy.
• A motor carrier must retain driver ELD data for a minimum of 3 years from the filing date of the corporate tax return.

The transportation industry has been unique in its treatment of driver per diem for over 30 years. The substantiated per diem method saves a motor carrier more money than cent-per-mile method. While, substantiated and cent-per-mile per diem methods are IRS-compliant, both require a motor carrier to comply with the adequate records and document retention rules. 

Get in touch with the experts at Per Diem Plus today to discuss a smooth rollout for your system.

Per Diem Plus FLEETS is a configurable mobile application enterprise platform that automates administration of an IRS-compliant accountable per diem plan for truck drivers and fleets managers. No matter how big or small your company is, Per Diem Plus has a solution for you.

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About Per Diem Plus FLEETS

Per Diem Plus FLEETS is a proprietary mobile software application that was designed by truckers and built by tax pros. It is the only IRS-compliant mobile app for iOS and Android that automatically tracks each qualifying day of travel in the USA & Canada and replaces ELD backups to substantiate away-from-home travel.

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This article was written by Mark W. Sullivan EA, Tax Counsel for Per Diem Plus, who has over a decade of experience advising trucking companies on per diem issues. Prior to starting a private practice in 1998, Mr. Sullivan was an Internal Revenue Officer with the New York, NY, Saint Louis, MO and Washington, D.C. offices of the Internal Revenue Service.  Questions? Contact Mark W. Sullivan, EA.

Copyright 2019-2022 Per Diem Plus, LLC. Per Diem Plus proprietary software is the trademark of Per Diem Plus, LLC.®

Disclaimer: This article is for information purposes only and cannot be cited as precedence or relied upon in a tax dispute before the IRS.

Designed by drivers, built by tax pros

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Is trucker per diem an improper wage reclassification?

Is trucker per diem an improper wage reclassification? No, the treatment of a portion of an employee’s wages as per diem has been unique to the transportation industry for over 30 years and is not considered an improper “wage reclassification”.

The IRS first introduced per diem (per day) allowances in Revenue Procedure 90-60 - a simplified method of substantiating employee business expenses - in accordance with the Family Support Act of 1988.  The first published guidance for the transportation industry was issued in 1991 where, according to the IRS, a driver's weekly compensation earned on a cents-per-mile basis may be reclassified by amounts designated as per diem (i.e. $66/day) for meals and incidental expenses after determining how many days a driver was away from home overnight [TAM 9146003].

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Related Article: Part II: Is Trucker Per Diem An Improper Wager Reclassification

IRS Issues 2024 Trucker Per Diem Rates (9/25/23)

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Is there a special per diem for the transportation industry?

Yes. The IRS introduced the Special Transportation Industry substantiated per diem method 20 years ago in Rev. Proc. 2000-39, 2000-9 Sec. 4.04 [Notice 2000-48], which among other things:

• Established a method allowing a payor to treat a specific amount as paid or incurred for employee meals while traveling away from home for work instead of substantiating actual costs (no receipts required).
• Allowed self-employed and employee drivers [claiming per diem as an itemized deduction] to use substantiated method.
• Set $40 as the nationwide federal meals and incidental expenses (M&IE) rate for transportation employees subject to DOT hours of service. [Increased to $66 in 2018] [i]
• Increased the tax-deductible percentage of employee travel expenses to 60%. [Raised to 80% in 2008] [ii]
• Approved as a transportation industry standard prior to December 12, 1989 the treatment of a portion of a driver’s wages as per diem. [iii]
• Required a fleet using the cent-per-mile method to include a process that;
  • tracks the amount of cents-per-mile M&IE allowance paid to a driver on a per diem basis,
  • includes a mechanism to determine when allowances exceed the amount of expenses that may be deemed substantiated, and
  • treat the excess allowance over $40 per day as wages for withholding or employment tax purposes. [Increased to $66 in 2018][iv]
• Established that all amounts paid under a per diem arrangement that meets the requirements of business connection, substantiation, and returning amounts in excess of expenses are treated as paid under an accountable plan and are excluded from income and wages.
• Well-known motor carriers that utilize substantiated per diem include Averitt Express, TMC Transportation, Transport America, Big G Express, Oakley Transport, Danny Herman Trucking and EPES Transport System.

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Stay In The Know: Biden's IRS Is Coming For Your PayPal & Venmo Payments

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When did wage reclassification become a concern in trucking?

The 2017 Tax Cuts and Jobs Act eliminated per diem as an itemized deduction on drivers individual income tax returns. As a result, interest from employees in company-sponsored per diem plans swelled as drivers sought to offset the lost deduction [about $19,000 for an average OTR driver]. Since, drivers were prohibited from using the decades-old industry standard cent-per-mile per diem method, motor carriers embraced the parity to drivers substantiated per diem provided.

Unfortunately, they discovered the IRS never published a basic instructions for implementing a substantiated per diem program or payroll process for reclassifying a portion of wages to daily rate per diem. In fact, the last comprehensive guidance issued by IRS on substantiated per diem method was Rev. Proc. 2011-47, however, it was silent on wage reclassification for per diem. So too was the last relevant court case, Beech Trucking, Inc. v. IRS (USTC 2002). The only published guidance that referenced "wage recharacterization" could be found in the Rev. Rul. 2012-25.

Why did IRS issue Revenue Ruling 2012-25?

IRS issued Rev. Rul. 2012-25 in response to an emerging audit trend whereby businesses that did not historically offer per diem were implementing abusive per diem plans that recharacterized taxable wages as nontaxable reimbursements or allowances. Although unrelated to trucking the tax practitioner community, and especially those that offered cent-per-mile per diem audit services, elevated the ruling to misplaced prominence.

Is Revenue Ruling 2012-15 applicable to trucking?

No. Based on the foregoing Rev. Rul. 2012-25 is inapplicable to transportation industry:

• In 1991 IRS ruled in technical advice (TAM 9146003) that, "for purposes of FICA, FUTA and income tax withholding, a driver's weekly compensation may be reduced by amounts designated as a per diem allowance for meals and incidental expenses."
• A revenue ruling is the conclusion of the Service on how the law is applied to a specific set of facts. (Kristin Hickman, IRB Guidance: The No Man's Land of Tax Code Interpretation, 2009 MICH. ST. L. REV. 239 (2009)).
• The facts articulated herein do not parallel the transportation industry in application or practice.
  • Motor carriers commonly vary compensation based on driver type - line-haul, regional and local - with drivers who travel away from home overnight being paid more than local drivers who sleep at home nightly.
• In three of the four situations listed in the revenue ruling the employer failed to fulfill the basic business connection requirement of the regulations.
  • A line-haul driver subject to DOT HOS who travels away from home overnight does so exclusively for work.

Specific facts - the devil is in the details!

1. Cable TV contractor offered a tool reimbursement that reduced hourly compensation that was offset with an hourly tool rate. Once a technician had received tool plan payments for the total amount of his or her tool and equipment expenses, the employer ceased paying the technician an hourly tool rate and increased the technician’s hourly compensation to the pre-tool plan hourly compensation rate.
2. Nurse staffing contractor compensated all of the nurses on an hourly basis and the hourly compensation amount did not vary depending on whether the hospital was located away from the assigned nurse’s tax home. The employer treated a portion of the nurses’ hourly compensation as a nontaxable per diem allowance only when hospitals assignments required them to travel away from their tax home. This situation is like that in Beech Trucking where the company paid per diem to both over-the-road and short haul truck drivers who returned home nightly.
3. Construction company’s workers were required to travel between construction sites or otherwise use their personal vehicles for business purposes. The employer paid all of its workers, including those who were not required to travel or otherwise use their personal vehicles for employer’s business, a flat amount per pay period that was treated as a nontaxable mileage reimbursement.
4. Cleaning services company that employed cleaning professionals that provided their own cleaning supplies to perform house cleaning services. The employer properly adjusted hourly compensation and reimbursed employees only for substantiated clean supply expenses.

Why did these employer's run afoul of the IRS?

The employer’s cited in 2012-25 failed to fulfill the business connection requirement of the regulations because they took liberties with IRS published guidance and ignored the limitations set forth in Rev. Proc. 2011-47 Section 3.03(2) which states in part, “An allowance that is computed on a basis similar to that used in computing an employee's wages or other compensation does not meet the business connection requirement unless, as of December 12, 1989, (a) the allowance was identified by the payor either by making a separate payment or by specifically identifying the amount of the allowance, or (b) an allowance computed on that basis was commonly used in the industry in which the employee performed services.” Furthermore, neither cable contractors, nurses, construction workers or house cleaners enjoy industry-specific rules prescribed by the IRS Commissioner like those covering the transportation industry introduced in Rev. Proc. 2000-9 Section 4.04 that established the Special Transportation Industry per diem[i].

Trucker Per Diem Examples

1. A truck driver employee travels away from home on business for 24 days during a calendar month. A payor pays him the $66 special trucking daily allowance for meal and incidental expenses only. The amount deemed substantiated is the total per diem allowance paid for the month or $1,584 (24 days away from home at $66 per day). The employer treats $1,584 as a pre-tax deduction; calculated withholdings; adds per diem to payroll as a non-taxable reimbursement.

2. A truck driver is paid 45 cents-per-mile. The employer classifies 10 cents-per-mile to a per diem allowance based on the number of miles driven. He travels away from home for 24 days but only drives for 20. Driver’s employer pays an allowance of $1,000 for the month based on 2500 miles per week. The amount deemed substantiated is the full $1,000 because that amount does not exceed $1,584 (24 days away from home at $66 per day). The employer calculates taxable wages at 35 cents-per-mile and per diem at 10 cents-per-mile as a non-taxable reimbursement.

Which per diem method provides the biggest benefit to drivers?

Although, a driver may travel 600 miles one day but only 100 miles the next, the distance traveled does not affect the need to eat 3 meals a day. As a result, substantiated per diem accurately reflects the definition of per diem in Rev. Proc. 2011-47 section 3.01: "Paid for ordinary and necessary business expenses the payor reasonably anticipates will be incurred, by an employee for meal and incidental expenses, for travel away from home performing services as an employee of the employer." Thus, the IRS introduced the Special Transportation Industry substantiated per diem to enhance and simplify tax compliance for fleets by relying on nights away from home instead of miles traveled.

The most beneficial aspect to a driver is that:

• Substantiated method yields on average 45% more per diem than cent-per-mile.
• Substantiated per diem can be earned during a 34-hour restart and unforeseen delays like detention, breakdowns, or weather.
• The average driver will save an additional $1,126 - $1,467 in income and payroll taxes over cent-per-mile.

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How often does IRS revise the per diem rules?

The Internal Revenue Code gives the IRS Commissioner discretionary authority to issue regulations, such as revenue rulings and procedures, to ease the burden on taxpayers, who would otherwise have to meet the extensive substantiation requirements in order to claim deductions for business related travel. The Commissioner updates these Revenue Procedures annually, but the relevant per diem provisions have remained substantially the same since 2011.

Conclusion

Thirty years of IRS guidance and legislative history specifically reference an employer paying a driver in the transportation industry under the substantiated method and, therefore, contemplate that some portion of a driver’s wages will be treated as per diem. While, both the substantiated and cent-per-mile per diem methods are IRS-compliant, neither method has been considered a wage reclassification for over 30 years. However, a motor carrier that adopts the substantiated per diem method that is built into Per Diem Plus FLEETS will realize the most benefit for both the fleet and their drivers.

Get in touch with the experts at Per Diem Plus today to discuss a smooth rollout for your system.

Per Diem Plus FLEETS is a configurable mobile application enterprise platform that automates administration of an IRS-compliant accountable per diem plan for truck drivers and fleets managers. No matter how big or small your company is, Per Diem Plus has a solution for you.

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About Per Diem Plus FLEETS

Per Diem Plus FLEETS is a proprietary mobile software application that was designed by truckers and built by tax pros. It is the only IRS-compliant mobile enabled solution that automatically tracks each qualifying day of travel in the USA & Canada for solo and team drivers and replaces ELD backups (logbooks) to substantiate away-from-home travel.

About the Author

Mark is tax counsel for Per Diem Plus. With nearly two decades of experience advising trucking companies on per diem issues, Mark was responsible for defining the Per Diem Plus software logic rules that automatically calculates trucker per diem in accordance with IRS regulations. He also previously served as the consulting per diem tax expert for Omnitracs.

In addition to his time working with Per Diem Plus, Mark works in private practice as an Enrolled Agent at Mark Sullivan Consulting, PLLC specializing in federal tax controversy representation and consulting. He also served as the consulting and expert witness for the Federal Defenders Office and private defense counsel in financial crimes cases in multiple federal district courts. Contact Mark W. Sullivan, EA

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Copyright 2020-2022 Per Diem Plus, LLC. Per Diem Plus proprietary software is the trademark of Per Diem Plus, LLC.®

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Disclaimer: This article is for information purposes only and cannot be cited as precedence or relied upon in a tax dispute before the IRS.

[i] The 2019 per diem rate for travel in the USA is $66 and $49.50 for a partial day.

ii] The IRS raised the deductible percentage of employee travel related expenses to 80% in 2008

iii] Federal Register-1989-12-12 Vol 54 Page 51038 pursuant to “Family Support Act of 1988”

[iv] Rev. Ruling 2006-56, 2006-2 CB 274

[i] Updated annually IRS Notice 2019-55, 2018-77, 2017-54, 2016-58, 2015-63, 2014-57, 2013-65, 2012-63, Rev. Proc. 2011-47, 2010-39, 2009-47, 2008-59, 2007-63, 2006-41, 2005-67, 2004-60, 2003-80, 2002-63 and 2001-47.

Designed by drivers, built by tax pros

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Download Case Study PDF

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Per Diem Program Saves Motor Carrier Over $3,000 Per Driver

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"Partnering with Per Diem Plus provided us a turn-key solution configured to meet the needs of our fleet and offer this benefit to our drivers who love our new per diem app."

Nick A., Controller

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Case Study

About:

Per diem saves fleet thousands. With over 400 power units the motor carrier is a leader among specialized companies serving the United States and Canada.

The Challenge:

The Controller was looking for a solution to two significant challenges impeding growth. The first involved reducing driver turnover and the second was raising driver pay in a tight labor market to improve driver recruiting.

Reasons:

• The 2017 Tax Cuts and Jobs Act eliminated the ability of employee drivers to claim per diem as a tax deduction on their individual income tax return.
• The absence of a company-sponsored per diem program increased driver turnover and hampered recruiting.
• Creating IRS-compliant contemporaneous per diem records from ELD back ups is immensely time consuming.

What Customer Needed:

• An IRS-compliant mobile application platform solution that would allow for rapid deployment with minimal investment in dollars and/or IT resources.
• An interface to manage individual and team drivers operating both ELD-exempt and non-exempt trucks that would be easy-to-use for non-technical users.
• A scalable,  secure, cloud-based solution to meet the growing needs of their fleet.
• Automated administration of a company-paid accountable per diem program.

The Per Diem Plus Solution:

The only IRS-compliant mobile application platform that automated administration of an accountable trucker per diem plan.

• Fleet-branded Android & iOS mobile apps that individual and team drivers could use on their own device or install on fleet-owned devices.
• Formatted per diem payroll reports streamlining the burdensome IRS tax compliance regulations.
• Eliminated the need to retain over 100,000 pages annually of ELD / AOBRD backups for no less than IRS-required 3 years.
• Superior driver support through our US-based Driver Success Team via Phone, Text and/or Email.
• A “Never Lost” retention policy that insures fleet per diem data is instantly available for 4 years.

Per Diem Case Study Results:

• The fleet is saving more than $3,000 per driver annually through reduced income and payroll taxes and workers compensation.
• Received $125,000 refund on prior year workers compensation premiums.
• The tax-free per diem program increased Married drivers pay by 2.8 cents per mile and Single drivers pay by 4.2 cents per mile.
• Driver turnover is down to 15%.
• The program launched in 21 days including tech implementation and driver training.

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The carrier was able to increase driver pay AND reduce expenses through implementing their per diem program with Per Diem Plus FLEETS.

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Use our Fleet Per Diem Benefit Calculator to learn how much your fleet can save with Per Diem Plus

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Implementing Per Diem Plus Fleets is easy

Implementing Per Diem Plus FLEETS is a breeze and does not require specially trained professional installers like telematics solutions. No matter how big or small your company is, Per Diem Plus has a solution for you.

Get in touch with the experts at Per Diem Plus today to discuss a smooth rollout for your system.

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Questions? Contact Mark W. Sullivan Program Manager - Per Diem Plus FLEETS

About: Per Diem Plus FLEETS is a proprietary mobile software application that was designed by truckers and built by tax pros. It is the only IRS-compliant mobile app that automatically tracks each qualifying day of travel in the USA & Canada and replaces ELD backups (logbooks) to substantiate away-from-home travel.

Copyright 2019-2022 Per Diem Plus, LLC. Per Diem Plus proprietary software is the trademark of Per Diem Plus, LLC.®

Designed by drivers, built by tax pros

Our tax experts jotted down some common questions customers have asked us about trucker per diem rules for fleets.

What is per diem?

The term"per diem allowance" means a payment under a reimbursement or other expense allowance arrangement that is — (1)

• Paid for ordinary and necessary business expenses incurred, or that the payor reasonably anticipates will be incurred, by an employee for meal and incidental expenses, for travel away from home performing services as an employee of the employer.
• Paid at or below the applicable transportation industry per diem rate.  

Trucker per diem rules for fleets eliminate the need for proving actual costs for meals & incidental expenses incurred.

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Related Articles:

Beware: Firms Promoting Illegal Trucker Per Diem Programs

IRS Orders Immediate Stop To New Employee Retention Claims

2024 Trucker Per Diem Rates Released

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Under the 2017 Tax Cuts & Job Act can motor carriers still offer per diem to employee drivers?

Yes. Drivers that receive a non-taxable per diem reimbursement from their employer (trucking company) do so under IRC Sec 62(2)(a).

Which employee drivers qualify for per diem?

Under the trucker per diem rules for fleets a motor carrier can offer per diem only to drivers who are:

• Subject to DOT HOS,
• Who travel away from home overnight where sleep or rest is required, and
• Do not start and end a trip at home on the same DOT HOS 14-hour work day.

Can all truck drivers receive per diem?

No. Drivers who start and end a trip at home on the same DOT HOS 14-hour work day cannot receive per diem. 

• Per Diem Plus automatically detects truck driving trips that do not meet the IRS per diem requirements.
• As of January 1, 2018 employee (company) drivers can no longer claim per diem on their Form 1040, US Income Tax Return, as an itemized deduction on Schedule A.

Will a motor carrier save money by implementing a company-paid per diem plan?

A fleet will save approximately $3,000 annually or $0.03/mile/driver as the payroll tax and worker compensation savings exceed the tax on the 20% nondeductible portion of per diem. 

Use our Fleet Per Diem Benefit Calculator to learn how much your fleet can save with Per Diem Plus Fleets.

Will a per diem plan raise driver pay?

Yes. On average driver pay will increase from $0.03 - $0.04/per mile.

What documentation is required to substantiate driver per diem?

A motor carrier must substantiate the “time, date, and place” for each day of travel.  Here is how the IRS-friendly Per Diem Plus FLEETS web services portal output report handles this requirement:

What documentation meets the IRS substantiation requirements?

Only Per Diem Plus FLEETS platform or DOT ELD backups with an itemized log listing "time, date & place" for each per diem event. Per Diem Plus automatically records per diem for travel in the USA and Canada for solo and team drivers.

Is company-paid per diem taxable as income to an employee driver under an accountable fleet per diem plan?

No. Per diem is classified as a non-taxable reimbursement to an employee driver and is not reported under wages on Form W-2.

What are the current per diem rates for travel in the USA & Canada?

IRS increased per diem rates effective October 1, 2018 (Revised 10/01/2021)

USA $69 from $66

Canada $74 from $71

Can a driver receive per diem for partial days of travel?

Yes. A partial day is 75% of the per diem rate.

• Partial per diem rate USA $51.75, Canada $55.50
• Per Diem Plus will record 3/4 per diem when a driver departs their tax home AFTER noon or returns to their tax home BEFORE noon.
• Per Diem Plus - Owner Operators and Fleets platform are the only telematics-based solutions that can calculate partial per diem. [See IRS Rev. Proc. 2011-47 Sec 6.04]

How much per diem can a fleet deduct on the corporate income tax return?

A fleet can deduct 80% of per diem on their income tax return. However, the payroll tax and worker compensation savings ordinarily exceed the tax on the nondeductible portion of per diem.

• Congress increased the deductibility of per diem to 100% for tax years 2021 and 2022

What documentation is required to prove other expenses?

Paper or electronic receipts that identify what, when and the amount are required. Drivers can upload and store receipts on the Per Diem Plus FLEETS app.  Watch Run IRS Compliant Reports with Receipts video to see how easy drivers can send an itemized expense reports with receipts to payroll or accounting.

Can a fleet pay per diem for lodging?

No. There is no published guidance from IRS that allows a fleet to pay a lodging per diem.

A self-employed driver (owner operator) falls under the related party rules of IRC 267(b) & Rev. Proc 2011-47.6.07 and, therefore, cannot use per diem substantiation that includes a meals and lodging per diem.

How long should tax records be retained?

No less than 3 years from the filing date of an income tax return.  Per Diem Plus FLEETS customers have instant access to itemized per diem tax records for four years.

ELD backups used to substantiate "time, date and place" are considered tax records.

What published guidance has the IRS issued that explains trucker per diem?

Refer to IRS Revenue Procedure 2011-47.  Or, use the Per Diem Plus FLEETS platform that automates administration of a company-paid per diem plan and takes the guesswork out of tax-related record keeping.  Our How it Works video demonstrates just easy the app is to use.

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Get in touch with the experts at Per Diem Plus today to discuss a smooth rollout for your system.

Per Diem Plus FLEETS is a configurable mobile application enterprise platform that automates administration of an IRS-compliant accountable per diem plan for truck drivers and fleets managers. No matter how big or small your company is, Per Diem Plus has a solution for you.

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Per Diem Plus Software Platform

• ELD-Integrated: Per Diem Plus API for Samsara
• Native Android & iOS Mobile Apps: Per Diem Plus - Owner Operators and Per Diem Plus Small Fleets
• Deep Link for Platform Science and Transflo Mobile
• APK to distribute via MDM

Per Diem Plus Fleets is also available on the Truckstop Marketplace, Samsara App Marketplace and Platform Science Marketplace

About Per Diem Plus

Per Diem Plus is a proprietary mobile software application that was designed by truckers and built by tax pros. It is the only IRS-compliant mobile enabled solution that automatically tracks each qualifying day of travel in the USA & Canada for solo and team drivers and replaces ELD backups (logbooks) to substantiate away-from-home travel.

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About the Author

Mark is tax counsel for Per Diem Plus. With nearly two decades of experience advising trucking companies on per diem issues, Mark was responsible for defining the Per Diem Plus software logic rules that automatically calculates trucker per diem in accordance with IRS regulations. He also previously served as the consulting per diem tax expert for Omnitracs.

In addition to his time working with Per Diem Plus, Mark works in private practice as an Enrolled Agent at Mark Sullivan Consulting, PLLC specializing in federal tax controversy representation and consulting. He also served as the consulting and expert witness for the Federal Defenders Office and private defense counsel in financial crimes cases in multiple federal district courts. Contact Mark W. Sullivan, EA

Disclaimer: This article is for information purposes only and cannot be cited as precedent or relied upon in a tax dispute before the IRS.

Copyright 2019-2022 Per Diem Plus, LLC. Per Diem Plus proprietary software is the trademark of Per Diem Plus, LLC.®

Tax Saving Tips For Owner Operators & Family-Run Trucking Businesses - Home Office Deduction

The following excerpt on the home office deduction is from "Making The IRS Work In Your Favor" presented by Mark W. Sullivan, EA at the 2018 CMC LIVE hosted by Kevin Rutherford and Let's Truck.

The Home Office Deduction

Taxpayers are not entitled to claim the home office deduction unless the expenses are attributable to a portion of the home, or a separate structure, used exclusively on a regular basis for business purposes.  Here is what you need to know to take advantage of a great tax saving opportunity.

Who can claim the home office deduction?

Only self-employed individuals may claim the home office deduction.

• Sole proprietorships claim it on Form 1040 Schedule C
• S-corporations claim it as an office expense on Form 1120S

The IRS has two tough tests to meet:

1. Statutory Administrative / Management Activities Test
2. Comparative Analysis Test

Administrative / Management Activities Test

Portion of home used exclusively

• Billing customers
• Keeping books and records
• There is no fixed office location

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Introducing Per Diem Plus Small Fleets, an affordable, customizable per diem solution for solo and team operators

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Comparative Analysis Test

• Determining principal place of business
• Importance of activities performed at home office
• Time spent at location

(Refer to IRC Sec 280A(a), 280A(c), 280A(c)(1)(A))

Example:

Using a den to write legal briefs and tax opinions as well as for personal purposes does not meet the requirements to claim the home office deduction.

• Fails the Comparative Analysis Test - Importance of activities performed at home office

Two options for calculating the home office deduction:

1. Safe Harbor Method
2. Allocable Portion of Home Method

Safe harbor method

• Calculate percentage of home or structure used for business
• $5 per square foot, up to maximum of 300 sq. ft. or $1500
• Deduction cannot exceed business income

Allocation portion of home method

• Calculate percentage of home or structure used for business
• Multiply by total costs of maintaining home
• Deduction cannot exceed business income

(Refer to IRC Sec 280A(c)(5)(A))

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Drivers, try Per Diem Plus or Small Fleets absolutely free for 30 days!

PDP Small Fleets requires users to complete the account setup HERE before using the app.

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About Per Diem Plus

Per Diem Plus was born over our 30 years of experience as agents and tax practitioners and a relentless pursuit to introduce efficiency to the time-consuming task of tax compliance for truck drivers, fleets and their accounting professionals. The Per Diem Plus^® Fleets enterprise platform enables motor carriers to easily implement an IRS-compliant fleet per diem program in hours that is scalable and data plan-friendly. Per Diem Plus was designed, developed and is managed in the USA and is the only IRS-compliant mobile application that provides automatic trucker per diem for solo and team drivers traveling in the United States and Canada. For more information, contact us at info@perdiemplus.com or visit www.perdiemplus.com

About the Author

Mark is tax counsel for Per Diem Plus. With nearly two decades of experience advising trucking companies on per diem issues, Mark was responsible for defining the Per Diem Plus software logic rules that automatically calculates trucker per diem in accordance with IRS regulations. He also previously served as the consulting per diem tax expert for Omnitracs.

In addition to his time working with Per Diem Plus, Mark works in private practice as an Enrolled Agent at Mark Sullivan Consulting, PLLC specializing in federal tax controversy representation and consulting. He also served as the consulting and expert witness for the Federal Defenders Office and private defense counsel in financial crimes cases in multiple federal district courts. Contact Mark W. Sullivan, EA

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Disclaimer: This article is for information purposes only and cannot be cited as precedent or relied upon in a tax dispute before the IRS.

Copyright 2018-2023 Mark Sullivan Consulting, PLLC; Per Diem Plus, LLC. Per Diem Plus proprietary software is the trademark of Per Diem Plus, LLC.®

Tax Saving Tips For Owner Operators & Family-Run Trucking Businesses

The following excerpt, "Paying your kids", is from "Making The IRS Work In Your Favor" presented by Mark W. Sullivan, EA at the 2018 CMC LIVE  hosted by Kevin Rutherford and Let's Truck.

Paying Your Kids

Trucking like any small business is often a family affair. My son started working in my accounting practice after school when he was 10 - shredding paper, stamping and stuffing envelopes. Whether you are a solo owner operator or run a trucking company, it is not uncommon to put your kids to work helping in the business.  Here is what you need to know to take advantage of a great tax saving opportunity.

Paying your kids to work in the business

First and foremost: Your children must be bona fide employees

• Their work must be ordinary and necessary
• Pay must be for services actually performed
• Services appropriate for your business
• Any real work for your business can qualify
  • Examples: answering phones, helping with your website, stuffing envelopes, or cleaning the office

• IRS has accepted that a seven-year-old child may be an employee

What does the IRS require for you to claim a child as an employee?

• Keep track of the hours your child works
• Have a written employment agreement specifying his or her job duties and hours

WARNING:

• No business deductions for personal services, such as babysitting or mowing your lawn at home
• Money you pay for yard work performed on business property could be deductible as a business expense

There are different rules for Sole-Proprietor / Partnerships and S-Corporations

Sole Proprietorship / Partnerships

Children under 21 wages subject to income tax withholding, but not :

• Social Security
• Medicare
• FUTA

Corporations

Children under 21 are subject to:

• Income tax withholding
• Social Security
• Medicare
• FUTA

Tax savings opportunity

In 2018 the standard deduction for SINGLE filers raised from $6,350 to $12,000.

• A child could earn up to $12,000 tax free

 

Example: Employment Tax on Wages of $12,000
	Sole-Proprietor	Corporation
FICA / Medicare / FUTA 16.8%	$0.00	$2,016

Reference Material:

Refer to: https://www.irs.gov/businesses/small-businesses-self-employed/family-help

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About

Per Diem Plus is a proprietary mobile software application that was designed by truckers and built by tax pros. It is the only IRS-compliant mobile app that automatically tracks each qualifying day of travel in the USA & Canada and replaces ELD backups (logbooks) to substantiate away-from-home travel.

About the Author

Mark is tax counsel for Per Diem Plus. With nearly two decades of experience advising trucking companies on per diem issues, Mark was responsible for defining the Per Diem Plus software logic rules that automatically calculates trucker per diem in accordance with IRS regulations. He also previously served as the consulting per diem tax expert for Omnitracs.

In addition to his time working with Per Diem Plus, Mark works in private practice as an Enrolled Agent at Mark Sullivan Consulting, PLLC specializing in federal tax controversy representation and consulting. He also served as the consulting and expert witness for the Federal Defenders Office and private defense counsel in financial crimes cases in multiple federal district courts. Contact Mark W. Sullivan, EA

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Disclaimer

This article includes general tax information, and therefore may not be relied upon as legal authority. This means that the information cannot be used to support a legal argument in a court case. Please consult with a licensed tax professional.

Designed by drivers, built by tax pros

The 20% Passthrough Deduction for Qualified Business Income

Internal Revenue Code Section 199A generally provides a 20% passthrough deduction for qualified business income (QBI) derived from a sole proprietorship, partnership or S corporation that is a qualified trade or business, like a trucking business.

• The Sec 199A deduction is taken from adjusted gross income (AGI) in determining taxable income and therefore does not reduce self-employment income.
• Most eligible taxpayers will be able to claim it for the first time when they file their 2018 federal income tax return in 2019.
• The deduction is available, regardless of whether an individual itemizes their deductions on Schedule A or takes the standard deduction.

The 199A deduction is complicated!  The estimated average annual burden hours per taxpayer is 2.5 hours, thus taxpayers are advised to seek professional tax guidance when calculating the deduction for their business. 

Internal Revenue Code Section 199A

The section 199A deduction is the lesser of:

1. The combined qualified business income (QBI), or
2. 20% of the excess (if any) of
   • Taxpayer’s taxable income for the year over
   • Taxpayer’s net capital gain

WARNING: Section 199A deduction:

• Is not available for wage income or business income earned through a C corporation.
• Qualified business loss from a separate business reduces QBI by 20% as well.

Qualified Business Income (QBI) is defined at Sec 199A(c) as the net amount of qualified items of income, gain, deduction, and loss for a tax year with respect to any qualified trade or business of the taxpayer.

Example 1

• Harvey Trucker, is single
• Sole Proprietor
• Has Schedule C business income of $150,000
• Income below $157,500 threshold
• $150,000 from Sch. C is QBI
• $150,000 x 20% = $30,000 pass-through deduction

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Introducing Per Diem Plus Small Fleets, an affordable, customizable per diem solution for solo and team operators

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Example 2

• Harvey Trucker, is single
• Sole shareholder and employee of S corporation
• Pays himself $80,000 of wages
• Has K-1 business income of $50,000
• Income below $157,500 threshold
• Wages are not qualified business income
• $50,000 from K-1 is QBI
• $50,000 x 20% = $10,000 pass-through deduction

Example 3 - Disparities from Entity Choice

• Assume Harvey’s taxable income is $150,000, all from the business
• S-Corp: He pays himself $100,000 of wages
• As a sole proprietor Harvey has $150,000 of QBI and a QBID of $30,000 ($150,000 x 20%)
• With the S corporation, however, Harvey has only $50,000 of QBI and a QBID of $10,000 ($50,000 x 20%)

What line on Form 1040 do you report the deduction on?

Line 9 of the Form 1040 for 2018 (draft). IRS will be issuing new tax returns, worksheets and other tools to assist individuals and businesses with their deduction calculation and tax preparation. DOWNLOAD 2018 DRAFT F1040 101718

Who is eligible for the deduction

Small businesses with qualified income below:

• $315,000 for married couples filing jointly
• $157,500 for single filers

When is the deduction modified?

Small business qualified income exceeds:

• $315,000 - $415,000 for married couples filing jointly
• $157,500 - $207,500 for single filers

How do S-Corporations and partnerships handle the deduction?

S-corporations and partnerships are generally not taxpayers and cannot take the deduction themselves. However, all S corporations and partnerships report each shareholder’s or partner’s share of QBI and W-2 wages on Schedule K-1 so the shareholders or partners may determine their deduction.

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Drivers, try Per Diem Plus or Small Fleets absolutely free for 30 days!

PDP Small Fleets requires users to complete the account setup HERE before using the app.

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About Per Diem Plus

Per Diem Plus was born over our 30 years of experience as agents and tax practitioners and a relentless pursuit to introduce efficiency to the time-consuming task of tax compliance for truck drivers, fleets and their accounting professionals. The Per Diem Plus^® Fleets enterprise platform enables motor carriers to easily implement an IRS-compliant fleet per diem program in hours that is scalable and data plan-friendly. Per Diem Plus was designed, developed and is managed in the USA and is the only IRS-compliant mobile application that provides automatic trucker per diem for solo and team drivers traveling in the United States and Canada. For more information, contact us at info@perdiemplus.com or visit www.perdiemplus.com

About the Author

Mark is tax counsel for Per Diem Plus. With nearly two decades of experience advising trucking companies on per diem issues, Mark was responsible for defining the Per Diem Plus software logic rules that automatically calculates trucker per diem in accordance with IRS regulations. He also previously served as the consulting per diem tax expert for Omnitracs.

In addition to his time working with Per Diem Plus, Mark works in private practice as an Enrolled Agent at Mark Sullivan Consulting, PLLC specializing in federal tax controversy representation and consulting. He also served as the consulting and expert witness for the Federal Defenders Office and private defense counsel in financial crimes cases in multiple federal district courts. Contact Mark W. Sullivan, EA

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Copyright 2018-2023 Mark Sullivan Consulting, PLLC; Per Diem Plus, LLC. Per Diem Plus proprietary software is the trademark of Per Diem Plus, LLC.®

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Reference: 2017 Tax Cut & Job Act, Kenneth K. Wright (2018)

Disclaimer

This article includes information is not included in the Internal Revenue Bulletin 2018-64, and therefore may not be relied upon as legal authority. This means that the information cannot be used to support a legal argument in a court case.

The transportation workers’ special standard per diem rate has been increased to $66 from $63. For travel to Canada the rate increased from $68 to $71 per day.

The new rate becomes effective October 1, 2018.

Have questions about trucker per diem? Contact us at info@perdiemplus.com

About the Author

Mark is tax counsel for Per Diem Plus. With nearly two decades of experience advising trucking companies on per diem issues, Mark was responsible for defining the Per Diem Plus software logic rules that automatically calculates trucker per diem in accordance with IRS regulations. He also previously served as the consulting per diem tax expert for Omnitracs.

In addition to his time working with Per Diem Plus, Mark works in private practice as an Enrolled Agent at Mark Sullivan Consulting, PLLC specializing in federal tax controversy representation and consulting. He also served as the consulting and expert witness for the Federal Defenders Office and private defense counsel in financial crimes cases in multiple federal district courts. Contact Mark W. Sullivan, EA

Making the IRS Work In Your Favor

Presented by Mark W. Sullivan, EA - Tax Counsel for Per Diem Plus, LLC

DOWNLOAD "Making the IRS Work In Your Favor" (PDF)

 

About the Author

Mark is tax counsel for Per Diem Plus. With nearly two decades of experience advising trucking companies on per diem issues, Mark was responsible for defining the Per Diem Plus software logic rules that automatically calculates trucker per diem in accordance with IRS regulations. He also previously served as the consulting per diem tax expert for Omnitracs.

In addition to his time working with Per Diem Plus, Mark works in private practice as an Enrolled Agent at Mark Sullivan Consulting, PLLC specializing in federal tax controversy representation and consulting. He also served as the consulting and expert witness for the Federal Defenders Office and private defense counsel in financial crimes cases in multiple federal district courts. Contact Mark W. Sullivan, EA

The following question was posted on Trucking With Authority Facebook Group,

"Does anybody know a factoring company that will help our company out? The owner has an IRS tax lien, but has paperwork of an IRS payment plan in place."

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Process for obtaining a Subordination of Filed Notice of Federal Tax Lien

1. Maintain employment tax deposit, tax return filing compliance and the terms of the installment agreement.
2. Communicate directly with the factoring agency or lender and advise them of your intentions, for without their cooperation a subordination will not be approved.
3. Complete Form 14134 Subordination of NFTL.
   • Include correspondence from the lender confirming approval of the commercial transaction financing agreement is contingent on IRS subordinating the tax lien.
4. File the Form 14134 with the IRS Revenue Officer that approved the installment agreement or Collection Advisory Group in your area
   • Pub 4235 Collection Advisory Addresses
5. Note: It normally takes 30-60 days to obtain a lien subordination

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Types of IRS Tax Lien Certificates

Internal Revenue Code (IRC) § 6323 provides for the filing of a Notice of Federal Tax Lien (NFTL). The IRC also provides for the issuance of other certificates for the administration of the lien, including:

Release of Notice of Federal Tax Lien

The filed Notice of Federal Tax Lien is self-releasing upon satisfaction of the underlying tax liability. IRC § 6325(a) requires the issuance of a release of federal tax lien within thirty (30) calendar days of the date on which:

Withdrawal of Notice of Federal Tax Lien

Internal Revenue Code (IRC) § 6323(j) gives the Service the authority to withdraw a Notice of Federal Tax Lien (NFTL) under certain circumstances, and to provide notice of the withdrawal to credit agencies under the following conditions:

Subordination of Notice of Federal Tax Lien

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About the Author

Mark is tax counsel for Per Diem Plus. With nearly two decades of experience advising trucking companies on per diem issues, Mark was responsible for defining the Per Diem Plus software logic rules that automatically calculates trucker per diem in accordance with IRS regulations. He also previously served as the consulting per diem tax expert for Omnitracs. In addition to his time working with Per Diem Plus, Mark works in private practice as an Enrolled Agent at Mark Sullivan Consulting, PLLC specializing in federal tax controversy representation and consulting. He also served as the consulting and expert witness for the Federal Defenders Office and private defense counsel in financial crimes cases in multiple federal district courts. Contact Mark W. Sullivan, EA