The main per diem expense is meals, including tips.
One of the most asked-about and sometimes misunderstood financial aspects of trucking is the per diem. It’s intended to cover the expenses of “meals and incidentals,” as the Internal
Revenue Service puts it, when you’re away from home.
For truckers, one common incidental that falls under the per diem is shower fees, says Christine Haslam, tax manager at American Truck Business Services in Denver. Laundry used to be considered a per diem expense, but now you should document your laundry spending and deduct it separately from the per diem.
The main per diem expense is meals, including tips. Like other owner-operator financial advisers, Haslam recommends using the per diem rather than trying to save dining and grocery receipts. The only way saving all that paper will make sense is if you routinely spend more than $41 on meals and showers each day. And you can’t have the best of both worlds – logging the occasional steakhouse splurge one day and claiming $41 on the others.
“The most important thing to have for the per diem is your driving logs,” Haslam says. “They would be crucial in an IRS audit to prove the number of days away from home. Keep them for at least four years.”
Exactly what you can claim can be complicated. First, there’s the matter of having a home – “a place where you have an address and pay significant rent or mortgage,” Haslam says. “There are many IRS cases where the per diem deduction was denied because the taxpayer lived in his truck. Living in your truck means you are never away from home.”
Then there’s the definition of “days” away. The IRS defines a day as a 24-hour period starting at midnight. Being gone less than 12 hours on any day doesn’t qualify for any per diem. On a day when you’re away 12 to 24 hours, you can deduct 75 percent of the per diem.
Say you leave Monday morning and return Saturday morning. The Monday time exceeds 12 hours, so you claim 75 percent. Tuesday, Wednesday, Thursday and Friday each qualify for 100 percent. Saturday amounts to less than 12 hours, so it doesn’t count at all.
If your schedule is more complicated, check with your accountant for help in evaluating the per diem.
MORE IN STORE
The IRS reviews the per diem amount, currently $41, for possible increase each year, effective Oct. 1. The per diem limitation is increasing every two years until 2008, so you’ll gradually get to deduct more of your per diem:
70% – 2005
75% – 2006, 2007
80% – 2008 and beyond
HOW PER DIEM HELPS
You can’t deduct the full amount of your per diem, only 70 percent of it, but you can deduct it from both your income tax and your self-employment (Social Security) tax. Let’s say your log books document 300 full days away from home in 2005 and you are in the 15 percent income tax bracket. Your per diem deductions should lower your tax bill by almost $2,500.
X $41 per diem
$12,300 Total per diem
x 70% 2005 limitation
$8,610 Deductible per diem
Income tax saving
$8,610 x 15% = $1,292
Self-employment tax saving
$8,610 x 14%* = $1,205
TOTAL SAVING $2,497
*Effective rate, accounting for Schedule C deduction before calculating 15.3 percent self-employment tax.