Per Diem Wasted

Today TaxMama hears from Bob in the TaxQuips Forum, who is trying to get it right. Let me summarize.  “I live in NJ and had a temporary job in DC for 6 months in 2010 (total 196 calendar days). I used Pub 1542 [per diem rates] for DC of $258 per day ($65 M&IE and $193 lodging) (Table 1), resulting in $50,568.00 worth of expenses. Did I figure this correctly? And if I did, why doesn’t this lower my taxes? Nothing I do brings down my tax liability!”

Dear Bob,

OK, you’ve done a lot of good work.

IRS allows the per diem rates for each night you spend in your business location, away from home. So, no, it does not have to be just the days you’re actually working, as long as you’re stuck there for months at a time – in a TEMPORARY location.

 As to the meals, the per diem rate is reduced by 50%. The software will do this automatically if you enter the meals in the right place.

 Now, why does this not change your net tax liability? Three tiny little letters:  AMT.

 Most likely, with all your other itemized deductions, you have hit the alternative minimum tax threshold. Look at the amount of AMT on page 2 of your Form 1040.

Remove some expenses and watch how AMT decreases. Add the expenses back in – and watch as AMT increases. It would be fun if it weren’t your own money. 

The good news?

Although you may not get a break now, you are building up AMT credits for future use. If you can figure out how to get them to work.  

On the other hand, you may want to have a tax professional do two things for you. 1) Review your tax return before you file.  2) Do some tax planning, so you can avoid this AMT trap in the future.

In fact, you may want to change the way you and your company handle your business expenses before your next temporary assignment.

 And remember, you can find answers to all kinds of questions about employee business expenses, per diems and other tax issues, free. Where? Where else? At

[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join link – it’s free!] 

Please post all Comments and Replies in the new TaxQuips Forum .

22 thoughts on “Per Diem Wasted

  1. BKB says:

    I am 1 of 2 members in an LLC. We both travel extensively for our work. The LLC pays for all the lodging and meals. Can the LLC to use the per diem rates and substitute them for the actual expenses?

  2. Robin says:

    I have a question about the perdiem from the employer side. If we give our employees a standard perdiem of say $65 per day to do with as they please does this have to fall under the ME&I? As far as we are concerned they are paying for their hotel stay because they would eat anyway. We have had an arguement about this going on because some think we have to pull 40% of that and have to pay taxes on it and some think that because it is under the standard amount allowed for lodging that it should just be deductible, all of it, and that we should not have to pull that 40% out for meals. The IRS pub is confusing and we are all getting something different out of it.

Leave a Reply