Keeping detailed records of employee travel expenses is a hassle. But there’s a way your business can simplify matters without any tax downside: Use the IRS-approved “per diem rates”. This way, employees don’t have to account for every last cup of coffee or cab ride.  The reimbursements are tax-free to the employees up to certain prescribed limits.

Furthermore, your company can deduct the per-diem reimbursements in full. One exception: The usual 50% deduction limit on meal expenses still applies.

The per-diem allowances are actually the approved travel rates for U.S. government employees, but the IRS also allows companies to take advantage of them. However, the per diem rates cannot be used for an employee who owns more than 10% of the company.

Employers have a choice between two per diem rates. The first is based on the specific travel destination of the employee. The General Services Administration (GSA) sets the following each year:

  • The per diem rates for the 48 states in the contiguous United States and the District of Columbia (the “CONUS” rates)
  • The per diem rates for areas outside the contiguous United States such as Alaska, Hawaii, Puerto Rico and U.S. possessions (the “OCONUS” rates); and
  • The per diem rates for areas in foreign countries.

The second method identifies each city as either a “high-cost” or “low-cost” area. The GSA adjusts the per diems for both areas each year. It recently announced the new rates and high-cost areas in effect for the government’s 2010 fiscal year.

Our expert staff can assist your firm in implementing the new per-diem rates. Keep in mind that the IRS often challenges deductions for business travel expenses, so it’s extremely important to meet all the requirements in this area, If you’re unsure of the obligations or opportunities, don’t hesitate to call our office at 562-868-6333 and we will be sure to streamline your recordkeeping procedures.


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