Taking the per diem deduction
What exactly is per diem? It’s Latin for “per day.” It usually refers to the daily rate of any payment. It also may refer to a specific amount of money that an organization allows an individual to spend per day to cover work-related living and travel expenses, such as meals.
In trucking, there are two separate per diem uses. You can get paid per diem from your employer, or you can deduct per diem on your tax return. As an owner-operator, you will never be paid per diem. But while the rules for deducting per diem are the same for both owner-operators and employee drivers, the method for deducting them on your tax return is different.
Knowing the per diem basics will help you navigate the tax labyrinth. Don’t be afraid to get a tax second opinion before filing.
To qualify for a per diem deduction, you must be traveling away from home long enough to be required to sleep away from home. If you take a short trip that doesn’t show any off-duty or sleeper-berth time on your logs, that trip does not qualify for per diem. Log books are always proof of per diem deductions.
To claim the deduction, you need to know how many days you traveled away from home for the entire year. Go through your log books and tally up the days. Count days you leave for a trip and days you return from a trip as three-fourths days. So if you leave on Monday and return on Friday, you would qualify for 4 1/2 days of per diem that week. Then multiply the total by the current IRS per diem allowance, which is $59 per day. (Note that days spent in Canada qualify for $65 per diem.) If you traveled 245 days during 2011, your total per diem is $14,455 ($59 x 245). That amount will be adjusted on your federal tax return for the allowable percentage (80 percent), which brings it to $11,564.
Owner-operators will report this deduction on Schedule C, which is devoted to business income and loss. The final amount reduces your income, dollar for dollar. If you’re in the 15 percent tax bracket, it reduces your income taxes by $1,735 ($11,564 x 0.15). It also reduces your self-employment taxes.
Keep receipts or not?
The idea behind per diem is to reduce accounting and paperwork for both the business owner and the Internal Revenue Service. You are able to claim the per diem deduction without keeping any receipts for the items that per diem includes, namely meals, beverages and tips.
Over the years, the IRS has gone back and forth on whether the per diem includes laundry costs while traveling. As of now, laundry is not included in the per diem deduction, so keep all receipts for laundry expenses and deduct those separately.
Many times you will be using coin-operated laundry machines and there won’t be a receipt. You are allowed to deduct travel expenses under $75 without a receipt if you keep track of them, so do that with laundry machines. Pick up an expense ledger from an office supply store, or just use a spiral notebook. Record the date, a description of the expenditure, and its cost.
Kevin Rutherford is an accountant, small-fleet owner and the host of “Trucking Business & Beyond,” which airs on Sirius XM Radio’s Road Dog Trucking Radio. Contact Rutherford through his website, LetsTruck.com.