Tax Law (Questions About Taxes)/Schedule C per diem
QUESTION: Hi Carole
I have question regarding Per Diem. Year 2012 I worked part year 1099 basis. I live in PA and worked in DC which required to travel to DC in week days(M-Th). I have received 1099MISC from a company. Now my question is I am filing my schedule C.I need to clarity on per diem.
(1) Should I eligible for per diem
(2) Do I need a receipt
(3) Where On Schedule C I can show per diem
(4) In DC area per diem lodging is 226 and other then first and last day M&IE is 71$ per day.
Please help me understand as my accountant says I need to have a receipt for that.
ANSWER: 1. You are NOT eligible for a per diem. Per diems are only available when the employee and the employer are arms length (Separate). For example in a real corporation, employees that own 10% or more of the stock are ineligible.
2. You do noeed to keep receipts, a receipt based reimbursement is your only option BUT, the receipts based reimbursement cannot exceed the perdeim rate.
3. You can't, that is why there is not line on that schedule.
4. Those are the maximum receiptable expenses that would be allowed. Anything over that be considered income to you.
I'd suggest getting downloading Publication 1542. It is not a clearly written description of the rules but it is what the IRS provides. You see, the IRS has no problem with you doing it wrong. In fact they come out way ahead when people fail to account correctly. If you wrote in "Per Diem" on your Schedule C each year, the first couple of years they won't correct you. The IRS always waits til the end of the audit window, year three. Then they audit, show that you filed incorrectly and get all the back taxes plus penalties of 30, 50 even 70% plus interest.
That can wipe you out.
Just to rub salt in the wound, because it is more than 3 years later that you find out that you did the paperwork wrong, and you didn't do a receipts based accounting, it is too late to amend that tax return with the receipts.
Sure Per Diem is higher than actual costs, could be as much as 50% higher if you are really frugal. But when you lose 100% of the deduction for all the years and pay penalties and interest it just isn't worth it.
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QUESTION: While I was searching I found from IRS website. Here is the link.
Question 3 says that it can be applied for meal for self employed.
Could you please clarify on this.
I apologize, I assumed that you meant the entirety of the Per Diem allowance. You are right for meals, you can use the per diem rate for substantiation. But only the meal rates.
Here is a link to the 2011 Internal Revenue Bulletin that explains it: