Have Tax Questions? Ask a Tax Expert for Answers ASAP
Welcome to Just Answer. I am here to help you resolve your tax and finance concerns. Please feel free to ask anytime you need extra help.
The IRS is specific in the deductibility of meal expenses. They only allow the deduction of 50% of this cost. Here is a brief piece from them.
Taxpayers who travel away from home on business may deduct related expenses, including the cost of reaching their destination, the cost of lodging and meals and other ordinary and necessary expenses. Taxpayers are considered "traveling away from home" if their duties require them to be away from home substantially longer than an ordinary day's work and they need to sleep or rest to meet the demands of their work. The actual cost of meals and incidental expenses may be deducted or the taxpayer may use a standard meal allowance and reduced record keeping requirements. Regardless of the method used, meal deductions are generally limited to 50 percent as stated earlier. Only actual costs for lodging may be claimed as an expense and receipts must be kept for documentation. Expenses must be reasonable and appropriate; deductions for extravagant expenses are not allowable. More information is available in Publication 463, Travel, Entertainment, Gift, and Car Expenses.
As to your accountant's statement that you should use the higher per diem thereby saving some of this deduction (actually putting you ahead, there is a problem. If you only used $10 in billing for this cost, you will only be able to deduct the 1/2 of that or $5. Doing otherwise will create a risk if you are ever audited. Audits will involve the examination of actual billings and will determine that you have misstated the deduction. This is a risk you may not want to take.
Thank you, XXXXX XXXXX think my accountant was referring only to meals/inclidentals, not hotel per diem. And he seems to be correct because as you noted:
The actual cost of meals and incidental expenses may be deducted or the taxpayer may use a standard meal allowance and reduced record keeping requirements. Regardless of the method used, meal deductions are generally limited to 50 percent as stated earlier. (This refers to 50% of the standard meal allowance as well as to actuals.)
What I find odd is that contractors sometimes get a 1099 form that only lists labor and not reimbursed expenses. Contractors who get those annual summaries tell me that they therefore do not have to pay any tax on expenses since the companies did not show they paid them. .