Today TaxMama® hears from Raj in the TaxQuips Forum, with a common issue. Let me summarize. (You can read the discussion here ) His tax return is being audited and the IRS auditor wants copies of receipts for his hotel stays for all his travel. But he used the IRS per diem rates, so he didn’t keep receipts. Can she disallow all his travel if he can’t produce the receipts?
The IRS allows you to use certain standardized systems to deduct business expenses – like mileage, travel, meals and, this year, even office in home. This is designed to simplify computations, and perhaps, to reduce incidences of audits.
However, in all cases, you still need records, receipts, etc. - proofs that you did engage in those activities, did spend money on those things, etc. So, when you’re using per diem lodging expenses, you still have to have receipts or some other tangible proof that you actually stayed in those towns for those specific nights.
Self-employed people can’t use per diem rates for lodging. They must use actual expenses – and keep receipts.
However, everyone may use per diem rates for meals and incidentals. Again, it helps if you have records to prove you were in a specific town, on a specific date, for business purposes.
If you are an employee, entitled to use lodging per diems, often, when you stay in an area long-term, you stay with your parents, a friend, or relatives, rather than a hotel. Be sure to pay rent, or your share of upkeep on the home. Get detailed receipts for your rent or the payments. The receipts should show the date, the amount paid, and to whom the amount was paid – and for what. When you are paying rent to such folks, be sure they understand that they are reporting the rental income.
When you keep good records and have receipts, you can find yourself paying someone $500 a month for a room. However, you could be entitled to deduct $2,310/mo ($77×30 – average rates in the continental US) – or even as much as $8,850/mo ($295×30 in Manhattan), if you look up your city’s specific rate.
And remember, you can find answers to all kinds of questions about substantiating travel expenses and other tax and business issues, free. Where? Where else? At www.TaxMama.com.
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