What is Per Diem for TruckersBrandon Gentry
Definition of Per Diem: a Latin word meaning “per day,” Per Diem is a specified allowance that organizations give an individual for meals and incidental expenses when traveling away from their tax home for work purposes.
Per Diem- The Basics
What is your tax home?
Your tax home isn’t necessarily the place where your family lives and where you maintain a household. The Internal Revenue Service defines a tax home as the regular place of business or post of duty, thus it could be in a different city or state than your family residence. Although traveling away from your family’s home, you still could be within your tax home and be ineligible to receive Per Diem or deduct it as an expense on your tax return. It includes, as described vaguely by the IRS, as the general area of entire city in which you conduct work.
You must evaluate the your unique living and work conditions to determine what should be considered your tax home. For traveling business people, Per Diem can accumulate to a large sum of money at year’s end.
Maximizing your Per Diem deduction for tax purposes is enticing because it can drastically reduce your overall tax liability. Though, I recommend being conservative when calculating your Per Diem. A miscalculation could trigger your account for examination by the IRS and is a time consuming and potentially costly mess to untangle.
Identifying the tax home of an over-the-road truck driver can be complicated. Driving truck often requires the employee or contractor to travel long distances from their residence and sleep away from home. Truck drivers are often assigned a home-terminal or hub to congregate and perform other work related tasks. Determining if the place of residence or a terminal is a subjective yet important thing to determine before calculating your Per Diem.
Example 1: Let’s assume Ricardo has an apartment in Las Vegas but is contracted and leased to a company located in Phoenix, Arizona. Ricardo spends a majority of his time away from his Las Vegas home but spends many nights at the terminal in Phoenix, Arizona waiting for loads and performing other administrative tasks. Ricardo’s tax home could arguably be considered Phoenix.
For this example, Ricardo would not be able to claim the Per Diem deduction for his nights away from Las Vegas that are spent in the vicinity of the Phoenix terminal.
Example 2: Let’s assume Ricardo does not have an apartment in Las Vegas. He spends his time in hotels and lives out of his tractor. He sometimes stays with family and friends but doesn’t pay a legitimate apartment lease or mortgage and doesn’t have utilities. The IRS will argue that Ricardo doesn’t technically have a tax home- in
fact, his tax home is always with him. For this reason, Ricardo cannot claim Per Diem on his tax return nor can he deduct motel expenses.
Per Diem for Employees
Many businesses compensate their employees with Per Diem for time traveled away from home. This type of extra pay is generally non-taxable as long as the Per Diem allowance does not exceed the standard rate. Any amount exceeding the standard allowance will be considered taxable income.
If your employer does not give you enough Per Diem, you may deduct the difference. For example, let’s assume your annual Per Diem should be $5,000 but your employer only gave you $4,000. You can deduct the difference of $1,000 as a non-reimbursable employee expense on Schedule A of Form 1040.
Per Diem for Independent Contractors and Small Business Owners
As a contractor, you will not be rewarded with Per Diem by your employer. Instead, you can deduct a percentage of the supposed Per Diem on your tax return as a business expense. For example, if you calculate an annual Per Diem deduction of $3,150, you’ll report a percentage of it as an expense on your business tax return.
For sole proprietors and single-member LLC, you can deduct a percentage of your total Per Diem allowance on Form 1040 Schedule C. For partnerships, multi-member LLCs, and corporations, you can deduct your Per Diem on the respective tax forms or your individual return.
Calculating Per Diem
The Per Diem rates are released annually and have a unique fiscal calendar. The determined rates will stand for October 1st of the tax year through September 30th of the following year, then are subject to change. The rates often stay the same but can change. Be sure to understand the current rates so you can adjust your calculation for increased allowances mid-year.
The rate for 2016 was $63 and did not change throughout the year. The current rate for 2017 is still $63 and will not change throughout the year.
The IRS allows a ¾ deduction of the appropriate Per Diem rate for days that you are departing from or returning to your tax home. This portion of the total Per Diem allowance is then subject to a percentage that can be deducted on your tax return.
Deductible portion of Per Diem
Depending on your profession, a specific percentage of the total Per Diem allowance is deductible.
For common employees and contractors, you may deduct 50% of the allowable allowance.
As a truck driver and DOT contractor or employee, you can deduct 80% of the Per Diem allowance.
You can still record the expenses inured from overnight stay in hotels and motels. Although there is a standard allowance for lodging, we recommend keeping receipts and recording actual amounts paid. The amount paid for hotels will almost always exceed that of the standard allowance and is indisputable evidence that you stayed away from home.
Proof of Per Diem
To substantiate your Per Diem, you must keep record that you spent the night away from your tax home. For common employees and contractors, this can be done by credit card statements and other transaction record.
The most common form of substantiation for a truck driver is a log book. With the new ELD (Electronic Logging Device) mandate, having proof of where you stayed the night won’t be difficult. Keep this record for years in case of audit by the IRS or State.
One or the other
In lieu of Per Diem, you can record the actual expenses paid for food while away from home. It will create more work for you and likely ends up being less than the Per Diem allowance. You cannot combine Per Diem with actual food expenses as a deduction on your tax return- it’s one or the other!
How Transaccts Can Help
You can record your location for Per Diem purposes in Transaccts’ app. Simply choose the date and city to record your location and the app will automatically calculate your Per Diem deduction and include it in financial reporting.
Join the growing fleet of truck drivers using Transaccts
Recommended for Leased Truck Drivers, Owner-Operators, and all other Independently Contracted Truck Drivers.