IRS issues new guidance on per diem rates for business travel

The Internal Revenue Service updated its guidance Tuesday for business travelers and their employers on the per diem rates for substantiating expenses, in light of the changes in the Tax Cuts and Jobs Act.

Revenue Procedure 2019-48 updates the rules for utilizing the per diem rates to substantiate the amount of ordinary and necessary business expenses paid or incurred while traveling away from home. Taxpayers aren’t required to use a method described in the revenue procedure, however, the IRS noted. Instead they can substantiate the actual allowable expenses, as long as they maintain adequate records.

While the 2017 tax law suspended the miscellaneous itemized deduction that workers can take for unreimbursed business expenses, self-employed people and certain employees, such as members of the Armed Forces Reserves, fee-basis state or local government officials, eligible educators and qualified performing artists, who deduct unreimbursed expenses for travel away from home can still use per diem rates for meals and incidental expenses, or incidental expenses only.

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IRS headquarters in Washington, D.C.

The revenue procedure clarifies that the Tax Cuts and Jobs Act amended the older rules to disallow a deduction for expenses for entertainment, amusement, or recreation paid or incurred after Dec. 31, 2017. But otherwise, the allowable meal expenses are still going to be deductible if the food and beverages are bought separately from the entertainment, or if the cost of the food and beverages is broken out separately from the cost of the entertainment.

The IRS traditionally issues guidance every year providing updated per diem rates; Notice 2019-55 provides the rates that have been in effect since Oct. 1, 2019.

The new revenue procedure provides the rules for using per diem rates, rather than actual expenses, to substantiate the amount of expenses for lodging, meals, and incidental expenses for travel away from home. Use of a per diem substantiation method is not mandatory. Taxpayers who use per diem rates to substantiate the amount of travel expenses under Rev. Proc. 2019-48 can use the federal per diem rates published annually by the General Services Administration. Rev. Proc. 2019-48 permits certain taxpayers to use a special transportation industry rate or to use rates under a high-low substantiation method for certain high-cost localities. The IRS announced the rates and the rate for the incidental expenses only deduction in its annual notice.

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