If you are a trucker, your per diem (for each day) method can save taxes. The per diem is the amount you can claim for meal deductions while you are away from home for the night. The per diem is only applicable for overnight trips. You can’t leave home, work an 18-hour day, and then return home, claiming the per diem. According to the IRS, this is not the same as being away from home for a full day.
Owner-operators or company drivers can claim per diem, but the process is different, depending on your status. If you drive for a company, you might receive an untaxed per diem allowance from your employer, so make sure you include this untaxed income in your return. Company drivers list their per diem as an itemized deduction. Owner-operators generate a total amount which is deducted via Schedule C on their tax return. Per Diem deductions will reduce both taxable income and self-employment taxes. While over-the-road drivers qualify for much larger, percentage wise, deductions than the typical tax payer, proper logging and documentation can mean both a lower tax liability and a smaller chance of being audited.
There are two per diem tax saving options for tracking and deducting meal expenses while on the road:
- Straight Per Diem: Keep track of the days you were on the road and take 80 percent of the per diem rate for each day.
- Percentage: More complicated, but also the safest way to track and record your expenses, is to keep all your food receipts and deduct 80 percent of your total expenses.
The Federal per diem rate is currently $59.00 per day. If you choose the Straight Per Diem option to track your days on the road, you can only deduct 80 percent of the $59.00, leaving an actual deductible amount of $47.20 for each full day away from home. There is also a $35.40 partial per diem rate for the day you leave home, and one for the day you return home. Every day in between is a full day and meets the requirements for the full $47.20 per diem.
Most truckers do not spend $59 every day, so using the Straight Per Diem method can actually save taxes more than the Percentage method. Plus, even if you do not spend $47.20 every day, you can still deduct the full amount. You may occasionally spend $47.20 per day, but it will generally run considerably less. The Straight Per Diem offers an escape from all the work of logging and keeping each and every receipt. It will also save time and more money than using the Percentage Option. Since the IRS allows truckers to write off the full amount no matter how much is actually spent, why not leverage it?
If you choose to go with the Percentage method, you need to keep comprehensive records, but can still only deduct 80%. Those who claim the Straight Per Diem are not required to keep such detailed records, just notes of their actual travel time and a statement of what the business purpose was. Since most truckers already record this in their logbooks, it’s simple to find out the number days you can claim per diem. You could save a lot of money by using Straight Per Diem rather than the Percentage option, plus you have no need for actual meal receipts.
It is important to remember that you can’t mix and match these options. If you want to save taxes, you need to use the Straight Per Diem option for one trip, you are required to use it for all your trips throughout the year.
There is no reason to go through all the work of keeping and cataloging each and every receipt. Using the Straight Per Diem Option will save time and most likely save more money than deducting a percentage of your expenses. Since the IRS allows you to write off the full amount no matter how much you actually spend, you should take advantage of it. This all adds up. A driver who spends 300 days on the road would receive a yearly deduction of more than $14K.
If you are tech-savvy, you can electronically track using either option. Some companies utilize electronic logging equipment for their employees or leased owner-operators. This is the easiest way to accomplish your goal and have hassle-free records at all times. But, there is a caveat. You will need to be able to produce this valuable information at tax time, and know that the expenses you are logging will be available to you or your tax professional.
Make sure your electronic records are being backed up, either by your company – or preferably yourself. Recently, an owner-operator couple in Pennsylvania was contacted by the IRS. They were using the logging software provided by their motor carrier. When they prepared for their audit, they went to their carrier to pick up the stored electronic logs, only to find out that the company only kept the records for six months. The problem was compounded when the truckers learned that when the IRS disallows the per diem, it also disallows every other expense, including fuel, truck payments and insurance. This puts truckers in a situation where they wind up spending a fortune to resolve something that should never have been a problem.
So again, back up your records. If you do it manually, use a special calendar for your per diem. Simply identify which days you are away for a full day or a partial day. Another option for keeping track of your per diem is to use a cell phone and call home every day. Your cellphone bill is acceptable for validation by the IRS. Alternatively, you can copy the electronic log into your calendar, or download the data from your logging software and back it up on a USB drive. It will be small and handy – and also all the documentation you need to save taxes and get the best tax refund possible.
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