The tax rules for substantiating business travel expenses are a major hassle, but there’s a way to avoid some of the headaches.
Strategy: Use IRS-approved per diem rates. Rely on this record-keeping shortcut for lodging and meals and incidental expenses (M&IE).
The IRS recently announced the new rates for the federal government’s 2015 fiscal year spanning Oct. 1, 2014, through Sept. 30, 2015. (Notice 2014-57, 9/19/14) Unlike most years, there’s a noticeable bump in the rates. You can start using the Fiscal Year 2015 (FY2015) rates on Nov. 1 of this year or stick with the FY2014 rates through Dec. 31, 2014.
Here’s the whole story: Each year, the Government Services Administration (GSA) sets the rates covering government employees in the 48 states in the continental United States and the District of Columbia (the “CONUS” rates); in areas outside the continental United States (Hawaii, Puerto Rico and U.S. possessions (the “OCONUS” rates); and in foreign countries. Private employers may use these rates without fear of reprisal.
Besides standard rates for specific destinations, the GSA establishes rates for “high-cost” areas (see chart below). All other destinations are treated as “low-cost” areas under this simplified alternative.
For FY2015, the GSA hiked the per diem rate for high-cost areas by $8 from $251 in the prior year to $259, consisting of $194 for lodging and $65 for M&IE. But the per diem rate for all other areas (i.e., low-cost areas) increased by just $2, from $170 to $172. This includes $120 for lodging and $52 for M&IE.
Note that you can’t use these per diem rates if you’re self-employed or a 10%-or-more owner.