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

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