As an owner-operator you have a lot of of tax deductions available to you. Per Diem is one of the largest deduction as a professional driver, but what is it exactly? In its simplest terms, the Per Diem deduction is a tax deduction that the IRS allows for travel incidental expenses. In this article I will discuss the specific rules around using this significant tax deduction. Both myself and my colleagues at ATBS specialize in helping owner-operators navigate the complex tax system. If you have any questions about the following information please contact us at 866-920-2827.
The IRS allows people who travel for business to deduct their meal expenses from their income. The Per Diem rate is set by the Department of Transportation. The current rate (as of October 1, 2015) is $63 per day in the Continental US and $68 per day while in Canada. You may have heard the amount of the deduction quoted as $50.40. That is because the IRS only allows you to deduct 80% of that rate. Non-CDL riders who are performing other duties (bookkeeping, dispatching, assisting loading, and unloading) may deduct a slightly lower rate of $57 per day, or, rather, 50% of $57 which comes out to $28.50.
Because of this change you will need to keep track of the different per diem days for 2015. You will use the old $59/day rate for January 1 through September 30, 2015 and the new rate for October 1 through December 31, 2015.
In order to qualify for these deductions, IRS publication 463 states that you are traveling from home if:
- Your duties require you to be away from the general area of your tax home substantially longer than an ordinary day's work, AND
- You need to sleep or rest to meet the demands of your work while away from home.
It further states that taking a nap does not satisfy the requirement. However, “you do not need to be away from home for a whole day as long as your relief from duty is long enough to get necessary sleep or rest.”
What does this mean to a driver? If you are an over-the-road driver, the rule is simple. You get to claim the tax deduction for each day that you are away from your “tax home”. On the days that you depart and the days that you arrive at home, you must claim a partial day allowance. That is ¾ of the standard allowance.
Things become a little more complicated if you are a local driver. Are you gone from home long hours? Local and regional drivers are frequently away from their home much longer than an average eight-hour workday. Therefore, fulfilling the first part of the requirements is simple. Yet, notice the “AND” between the two requirements? This means that you must meet both conditions in order to claim the deduction.
Furthermore, IRS publication 463 states that you must have a “tax home”. There are three tests to determine your tax home. In order to meet the requirements, you must satisfy two of the three following tests:
A. You perform part of your business in the area of your main home and use that home for lodging while doing business in the area.
B. You have living expenses at your main home that you duplicate because your business requires you to be away from that home.
C. You have not abandoned the area in which both your historical place of lodging and your claimed main home are located; you have a member or members of your family living at your main home; or you often use that home for lodging.
So what does this all mean? In a nutshell:
- You must be away from home for 24 hours.
- You must have a home from which to be away.
- If you meet requirements A and B, you can deduct $50.40 for each full day away from home as a driver and $28.50 as a non-CDL rider. You can deduct $37.80 per partial day as a driver and $21.38 as a non-CDL rider.
At ATBS, we recommend keeping a Per Diem calendar, putting an ‘X’ on full days away, and a ‘/’ on partial days. That way you can count up exactly how many days of Per Diem you have for your tax preparer come tax season. I hope this article helped make an often-confusing issue easier to understand. If you have more questions on Per Diem, put them in the comments section below or you can contact ATBS at 866-920-2827.
Check out the video below for a little more information on the changes that have taken place to the per diem rate.