LIV Bookkeeping

We list this news under Tax Tips because if you and/or your employees are willing to keep your travel budget within these per diems, the reduced record keeping requirements will save you time and money on accounting functions and, thereby, free-up time for more productive tasks, such as generating income.

The IRS has issued its annual update of the simplified per diem rates that taxpayers can use to reimburse employees for lodging, meals and incidental expenses incurred during business travel. The simplified "high-low" per-diems have risen to $256 and $158, respectively, up from $237 and $152. The IRS also announced that nine localities have been removed, and one location added, from the list of high-cost areas.

Background. Employers may use the IRS's simplified high-low per diem, which provides a uniform per diem rate for all high-cost and other areas within the continental United States (CONUS) rather than using actual per diems. If the per diem rate paid by an employer to an employee for away-from-home lodging, meal and incidental expenses does not exceed IRS-approved maximum per-diem rates, and the employee meets simplified substantiation requirements, reimbursement is deemed to be made under an accountable plan and not subject to income or payroll tax withholding nor is it reported on an employee's Form W-2.

The General Services Administration (GSA) per diem rates for each locality in the U.S. may be used instead of the simplified "high-low" rates.

Rates. The IRS-approved per diem rate for high-cost areas is $256 ($198 for lodging and $58 for meals and incidental expenses), which represents an increase of $19 from the rate established a year ago. The IRS-approved per diem rate for low-cost areas is $158 ($113 for lodging and $45 for meals and incidental expenses), which represents an increase of $6 from the rate established last year. The update applies to per diem allowances paid for travel on or after October 1, 2008.

Transition relief. Taxpayers may continue to use the current CONUS rates for the first nine months of calendar year 2008 instead of the updated GSA rates; however, they must consistently use one or the other for the period of October 1, 2008 to December 31, 2008. Taxpayers who used the federal meal and incidental expense rates for the first nine months of calendar year 2008 may not use the transportation industry rates (Rev. Proc. 2008-59, January 1, 2009). Taxpayers who used the transportation industry rates for the first nine months cannot use the federal meal and incidental expense rates until January 1, 2009.

If you need further clarification of how these new rates impact your travel plans, please do not hesitate to call this office.

As you may be aware, once you start taking the actual expenses deduction for your vehicle, you can never go back to the standard mileage deduction... or can you?

Actually you can. But you need to do a little math to see if the switch is worth it.

 

The standard mileage deduction must be taken from the first day you place a vehicle in service. That can happen two ways:

 

It's the latter we want to discuss here.

 

Starting a "business" is a simple matter of being engaged in some activity that is intended to make a profit.  That covers a lot of territory. Almost anything you do that makes money is considered a business. If you're self-employed, you're likely lumping all of your income into one pot. To have a new business, you could simply change the name of your existing business, or carve out income from your existing enterprise and give it a new name.  Voila!  New business!  Now simply place your old car in service with your new business and you can take the standard mileage deduction.

 

So why would you want to go through all this trouble?  Well if you're driving a reliable but inexpensive car (like a 10 year old Honda or Toyota), you're likely not putting much into your car except gas and the occasional quart of oil.  Under these circumstances, the tax benefits of the standard mileage deduction could be a great deal larger than the actual expenses deduction.  Let's do the math... Let's say you:

 

Your actual expenses would be $1,200 for the year.  At the current standard mileage deduction rate of 58 1/2 cents per mile, your standard deduction would be $7,020.

 

So, yes, it may cost you a few dollars for a new name and bank account, but if it saves you a few thousand dollars a year, it may be worth it.