Tax Deduction – Meal Per Diems|
Author: Tim Barrans
Per Diems deduction can be one of the best flight attendant deductions. This deduction depends on which city you layover in. The IRS states that you can either itemize each city you fly to or you may take a standard rate. If you fly domestic, this standard rate can work to your advantage. We are seeing a nice jump in them minimum about in 2006. Previous the base rate was $31 a day for meals and incidentals; in 2006 the base rate has jumped to $39. However keeping track of every city is important as many cities are substantially higher that the base rate, as high as $61. Alaska and Hawaii can be as high as $91. We have attached both 2005 and 2006 U.S. rates. Also realize that changes in per diem rates are from October to October, thus you need to keep track of locations times. A few seasonal cities even have seasonal per diem rates.
If you fly any international trips, it is well worth itemizing out your layover cities. The standard rate for International is $46 per day where as the daily rate for a common city such as London is $100 per day. Both Alaska and Hawaii are included on international rates. When figuring out your Per Diem, you use Meals and Incidental rates. For instance in Anchorage Alaska you take the Local Meal rate of $71 plus the Incidental rate of $18 for an M&I of $89. International rates do not have the same October to October schedule of change.
If you just flew domestic, the IRS will allow us to use an average rate based on the number of days you flew. Turn arounds are not included in this deduction. Once you calculate the total amount you are allowed, the total non-taxable per diem that you were paid by your airline is subtracted.
Flight attendants get an additional break here. For the average work in America than can only deduct 50% of their meal expense. In 2005 Flight Attendants can deduct 70% of their actual expense or per diems, minus any nontaxable payments your employer paid you. This amount will climb to 80% by 2008
For Businesses, Self Employed
You can deduct 50 percent of ordinary and necessary business expenses for entertaining a client, customer or employee if it is directly related to your business or associated with your business. It is essential to keep excellent records for business entertainment expenses. For example, if you take someone out for a meal, be sure to document the date, the amount, the place the meal took place, the business purpose of the meal, and the business relationship. If you hold a party, you should keep a copy of the guest list, noting your respective business relationships.
IRS rules for business-related meals, entertainment and gifts allow you substantial opportunities to convert personal expenses into deductions.
How would you like to get a discount of 14% to nearly 20% on your meals and entertainment expenses? If your meals and entertainment expenses were deductible, a $100 meal would cost only $86.25 if you were in the 27% tax bracket.
Tax laws allow you to deduct half of your meals and entertainment expenses if they are business-related. Any expenses for food and drink provided under circumstances considered favorable to a business discussion, or when a business discussion is held, can be deducted. If you are self-employed, you can deduct them as part of your adjustments to income.
Entertaining Business Clients
By far, the most commonly used aspect of this deduction relates to entertainment and food, however. The custom of entertaining business clients or potential business clients with food and drink in restaurants and hotels converts into deductible expenses. When you go out with friends or relatives for a meal or drink, do you ever pick up the check? If they are or could be potential clients or customers for your business, and you discussed business with them, then that check would be deductible.
Even if you do not talk business at the meal, it will be deductible if the meal follows or precedes a business discussion. Recognize that no actual business need come from the meeting so long as business was discussed. Be careful, if you meet with some one regularly and exchange picking up the tab, you can face a tremendous penalty. If caught by the Internal Revenue Service, the deduction will be disallowed as a sham and subject you to fraud penalties. However, do not hesitate to deduct legitimate expenses.
Not only can you deduct meals, but you can also deduct business entertainment expenses. Money spent for business entertainment, amusement or recreation can be deducted if you can show the expense:
• Directly preceded or followed a substantial business discussion;
• Directly related to the active conduct of your trade or business.
• Examples of potentially deductible expenses include entertaining guests at nightclubs, theaters, sports games, or even vacation trips.
Do not waste much energy building up deductible entertainment expenses unless you are prepared to do it right. This area is always a target of audits and is one of the most abused of all expenses. Make sure that each receipt (or notation in your appointment book or business diary) has ALL FIVE of the following components:
• The amount of each expenditure;
• The date of the expenditure;
• The name, address or location, and type of expenditure, such as dinner or theater, if the information is not apparent in the name or designation of the place;
• The reason for the expenditure or the business benefit derived or expected to be gained. While this sounds complicated, it is really easy.
• Information about the person or persons entertained, including the name, title or other designation sufficient to establish the business relationship to you.
You must have a receipt or other documentary evidence for meals or entertainment expenses of $75 or more. Currently, for expenditures of less than $75, you do not need a receipt. In a recent audit, when asked for "all" of my receipts. I brought out only those over $75 and my records for the rest. The auditor had to take what I gave him as proof. Fully acceptable substantiation would include a diary or written planner in which you enter the above descriptive information. I put this information on my business software records. Even in an audit, the entries are complete substantiation under the law.
While most meals or entertainment expenses can only be deducted for half of the cost, certain meal and entertainment expenses remain fully deductible:
• Expenses reimbursed under an "accountable plan;"
• Expenses incurred for recreational or social activities provided by the employer for the benefit of its employees. These might be the annual company picnic or holiday party;
• Expenses for goods, services and facilities made available to the general public, such as promotional tickets or customer samples;
• Expenses related to the ticket package costs for sporting events arranged primarily for the purpose of charitable fund-raising.
The deductions for meals and entertainment allow you substantial opportunities to convert your personal expenditures into business deductions. Do not fail to claim them and do not fail to keep them because of lack of adequate substantiation. In the 30.5% tax bracket, $100 worth of entertainment expenses costs you $84.75. No matter how much money you're making, it would be worth $15.25 in tax savings to spend 30 seconds noting the name of your business clients and the business discussion on the back of your ticket stub or receipt.
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Tim Barrans is a tax consultant and has written four tax books. Flight Attendant Complete Tax Guide, www.seaFAtax.com, Network Marketer's Tax Guide, www.NetworkTaxBook.com, and Complete Real Estate Tax Guide www.RealEstateTaxBook.com