One of the most valuable tax-busting deductions seems to be hiding under the mushroom of business inexperience. When I review this deduction at a writers’ workshop, ranging from novice to established writers, authors and illustrators, I find that only 2 or 3 have some awareness of this tax break.
I am talking about maximizing the IRS Meal Allowance. The meal allowance becomes available when you incur meal costs while away from home (essentially, travel requiring overnight lodging) on business trips. If you eat sparingly, or only one basic meal a day, or are a perpetual “snacker” during the day, you will like the idea of not having to keep records of meal costs coupled with the higher, no-questions-asked, meal allowance.
In the IRS tables, the allowance is referred to as the “M&IE” rate (meals and incidental expenses). In addition to meals and tips for food servers, the allowance (M&IE rate) includes a limited number of “incidental” expenses such as fees and tips for porters, baggage carriers, hotel maids, or room stewards. Self-employed individuals may claim the M&IE allowance.
Meal Allowance on 2015 tax returns
For travel within the continental U.S., the standard meal allowance (M&IE) for 2015 is generally $46 per day; however, [flashing lights] higher rates apply in major cities and other high-cost locations (such as resort areas) designated by the government. For example, in 2015, the M&IE rate for both Dallas, TX and San Francisco, CA is $71 per day (rate research guidance will be provided below). The basic and high-cost-area meal rates are determined by the federal government’s General Services Administration (GSA) and the IRS allows taxpayers to use the applicable rates in figuring their meal allowance deduction.
You must keep a record (required anyway for all away-from-home business travel) of the time, place, and business purpose of the trips. As long as you have this proof, [flashing lights] you may claim the allowance even if your actual costs are less than the allowance! EXAMPLE: Suppose you were in Dallas on business for five full business days (excluding the arrival and departure days, discussed below) and you averaged spending only $35 per day for food, beverages and tips (totaling $175). Your allowed deduction for those five full business days in Dallas would be $355 (5 X $71)! In this example, you double your tax deduction by simply doing your meal allowance research and documenting the amounts in your travel journal. If you frequently travel overnight on business, this approach, consistently applied throughout the year, will lower your tax due or increase your refund.
One quick note: the meal allowance is prorated for the first and last day of a trip. You may claim only 75% of the allowance for the days you depart and return.
Researching your Destination Meal Allowance
To get the allowable meal allowance for your business destination, you will use the General Services Administration (GSA) website and click on “per diem” rates on the home page. [See below for Apple iPhone app.] You can search your destination meal allowance by using the name of the city and state or inserting its zip code. You can also click on a particular state, using the map, and get a list of cities within that state. You will be using this resource to see if your destination location has a higher meal allowance than the standard amount of $46 per day. The M&IE amount is shown in the last column of the GSA chart.
The GSA chart is set based on the federal government fiscal year–October through September each year. Right now, if you look at the per diem page, you will see, right above the map, that the rates currently reflect “fiscal year 2015″ (October 2014 through September 2015). You will need to use the drop down menu and select “fiscal year 2014” to get the rates for 2014 by destination. As a calendar year taxpayer, you will be recognizing your expenses from January through December each year, so you are given an option: you can apply the rates that were in effect for the first nine months of the year to business trips in the last three months or you may use the first set of rates for the first nine months and the updated rates (FY 2015) for the last three months (Oct.-Dec.). For trips within the last three months, you must consistently use either the rates in effect for the first nine months or the revised rates that took effect on October 1; you cannot switch between the sets of rates on a trip-by-trip basis. If you travel to more than one city on the same day, use the meal allowance for the area where you stay overnight.
Claiming the Deduction
As a self-employed person, you will report your allowable meal expense for the year times 50% on Schedule C, line 24b (based on the 2014 return). That’s correct. You take your total allowable meal expense, reduce it by 50%, and then report that net amount on Schedule C, line 24b. Congress enacted the 50% reduction whether you use actual meal costs or the meal allowance (M&IE). That’s why I feel this is so important to you. Would you rather end up with 50% of your actual meal costs or 50% of your meal allowance? My thoughts are that when you use 50% of the meal allowance, it is likely you are recovering almost 100% of your actual costs (review my Dallas example above)! Without this strategy and documentation, you will only be allowed 50% of your actual costs as a deduction on Schedule C.
2015 Tax Strategy
Before completing and e-filing your 2015 federal tax return, go back through your out-of-town business trips that required staying overnight and research your meal allowance for each location and compare it to your actual meal expense for that location. Use the higher amount in each case for purposes of claiming your meal and incidental expense on your tax return. Some of you may have no meal receipts at all and this will be a godsend for you.
Finally, if you have your tax return prepared by someone, you must bring this information to them. Paid preparers are busy! Some may take the time to ask you how many days you were here and there when out-of-town and look up the meal allowance for you and then make the calculation but they will be charging you for this time. You need to know, when you walk in or drop off your materials, your total business meal costs incurred or allowed. Tell your preparer: “My gross out-of-town business food costs allowed or incurred for 2015 was $ ….. and my Schedule C deduction is $…… (50% of the gross amount). Your preparer will not only be impressed but relieved. Be sure, when you review the completed return, that you check Schedule C, line 24b for agreement with your documentation (mistakes happen in a busy tax preparation office) before you approve the return for e-filing. It’s important that you retain the documentation to support the amount claimed for at least 3 years from the filing due date.
Mobile App Now Available
Go to the Apple iPhone app store and search using “GSA per diem” and download the application for easy use. For other mobile platforms, go here.
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