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July 5, 2016

Our Tax Experts answer "What is per diem?"

Mark Sullivan- Per Diem Plus
Mark W. Sullivan, EA
Mark is our transportation industry expert and has over a decade of experience advising clients on IRS accountable per diem programs. 

An employee truck driver new to the transportation industry asked the following question to the Per Diem Plus tax experts:  What is per diem?

Per diem simply means a “per day” travel expense allowance.  Although taxpayers have the option of keeping actual records of their travel expenses, the IRS has provided per diem allowances under which the amount of away-from-home meals and incidental expenses may be deemed to be substantiated.  These per diem allowances eliminate the need for proving actual costs.  However, a taxpayer must substantiate the amount, time, place and business purpose of expenses paid or incurred by adequate records or other evidence when traveling away from home1.

Both self-employed and employee truck drivers subject to the hours of services limitations of the Department of Transportation (DOT) can claim $63 for meals & incidental expenses (M&IE) for travel with the United States ($68 in Canada) and are not required to retain receipts or sales slips for these expenses.  A trucker can deduct 80% of these expenses on their income tax returns2.

 

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

A truck driver who is away from home for only a portion of a day can prorate the M&IE allowance.  For example, Per Diem Plus allows 75% of the M&IE rate where a driver departs their tax home after noon or returns home from a trip before noon. 

Are showers and reserved parking fees considered “incidental expenses?"

No.  Incidental expenses include only fees and tips given to porters, baggage carriers, hotel staff and staff on ships.  Transportation between place of lodging and place where meals are taken and the mailing cost of filing expense reports are no longer included in the definition of incidental expenses3.  Drivers using per diem rates may separately deduct expenses for postage, showers and reserved parking fees.

 

What documentation is required to substantiate overnight travel and expenses?

In order to claim any deduction, a taxpayer must be able to prove, if a tax return is audited, that the expenses were in fact paid or incurred.  The IRS deems travel expenses particularly susceptible to abuse and requires truck drivers maintain an adequate accounting and sufficient documentary evidence to prove overnight travel.  For example, logbooks, expense diaries or an IRS-approved software tool like Per Diem Plus.

Self-employed and employee drivers cannot claim per diem for lodging and are required to maintain documentary evidence for all lodging expenses4.

 

Can all truck drivers claim per diem?

No. An individual is not away from home unless their duties require them to be away from the general area of their home for a period substantially longer than an ordinary workday and it is reasonable for them to need to sleep or rest5.  For example, drivers who start and end a trip at home within the DOT 14 consecutive-hour “driving window” cannot claim per diem.

 

What qualifies as a tax home?

Tax home defined:  An individual’s tax home is considered to be:  (1) the taxpayer’s regular place of business, or (2) the taxpayer’s home in a real and substantial sense6.  A taxpayer who is itinerant or someone who has a home wherever they happen to be working is never away from home for purposes of deducting traveling expenses.

 

This article was written by D R Sullivan & Company, CPA PC, an accounting firm that has been providing taxpayer advocacy, consulting, and litigation services since 1998.  The firm has nearly a decade of experience advising large fleets and telematics providers on IRS substantiated per diem and is tax counsel for Per Diem Plus, an automated per diem and expense tracking Android app.

Please remember that everyone’s financial situation is different.  This article does not give and is not intended to give specific accounting and/or tax advice.  Please consult your own tax or accounting professional.

Copyright 2016 Per Diem Plus, LLC. The Per Diem Plus logo and Per Diem Plus are trademarks of Per Diem Plus, LLC.

 

  1. IRS Rev. Proc. 2011-47
  2. IRC Section 274(n)
  3. Notice 2013-65
  4. Reg. Section 1.274-5(c)(2)(iii)
  5. IRC Section 162(a)(2)
  6. Rev. Rul. 75-432
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