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Get a jump on new per-diem rates

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in Small Business Tax

The IRS just updated its per-diem rates for business travelers. After inching up by just a few dollars the past few years, the new rates reflect double-digit increases for both "high" and "low" areas. (IRS revenue procedure 2005-67)

Strategy: Start using the higher rates right now! Although the jacked-up rates apply to 2006, you can elect to use them any time after Oct. 1, 2005.

If you use the per-diem rates, employees don't need to keep receipts for all their travel expenses. You simply pay the government-approved allowance—no muss, no fuss. Employees don't have to report the payments on their tax return, but they still must substantiate the time, place and business purpose of their business travel.

If you use the "high-low" method for per-diem rates, you can rely on a specified amount for designated travel destinations. The IRS has hiked the rates for "high-cost" areas from $204 to $226 for travel in the continental United States. The per-diem rate for all other localities (i.e., the low-cost areas) rises from $129 to $141. Certain resort areas qualify as high-cost areas only during tourist season.

In addition, the IRS tinkers with the list of high-cost areas each year. Some new cities added to the list: Bar Harbor, Maine; Conway, N.H.; Saratoga Springs/Schenectady, N.Y.; and Steamboat Springs, Colo.

Conversely, the IRS has removed a few localities from the list of "high-cost" cities, including: Atlantic City, N.J.; Hilton Head, S.C.; Hyannis, Mass.; and Palm Springs, Calif.

Online resource: View the complete list of per-diem rates at

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