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Per diems for self-employeds

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in Small Business Tax

An employer may reimburse employees for business travel tax-free under an IRS-approved “per diem” allowance. For instance, the employer can use one figure for “high-cost areas” and another for all others. But per diems that include lodging allowances can’t be used for 10%-or-more business owners.

New case: A self-employed farmer spent 40 days a year traveling on business. He used the high-low per diem to calculate his travel expenses.

The Tax Court permitted the self-employed taxpayer to use the per diem for meals and incidental (M&I) expenses supported by travel records of the time, place and business purpose. But he still had to document actual lodging expenses. (Riley, TC Summary Opinion 2007-260)

Tip: A self-employed individual can deduct only 50% of the M&I expenses, but lodging expenses that are properly substantiated can be deducted in full.

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