R.13 Keeping records of days away from tax home
The IRS allows a deduction for meals and incidental expenses while traveling for a full workday or longer, outside of the taxpayer’s regular area of business for a business purpose. You do not need to keep receipts in order to take this deduction. Instead, you may simply keep a record of the days you traveled away from your regular place of business, and use the published “GSA Per Diem Rate” tables to find the amount you are allowed to deduct for each trip.
The per diem deduction covers a basic amount for meals, and a small amount for incidentals. Incidentals are things like buying aspirin or sunscreen.
The per diem deduction is useful for farmers who travel to distant farmers markets or to attend a class. Instead of keeping receipts for the meals you eat on your trip, you can use the per diem expense tables and use the published amounts.
You find the per diem amount by looking up the destination location at: https://www.gsa.gov/travel/plan-book/per-diem-rates The amounts are usually more than $60 per day, however since the per diem deduction is mostly for meals and since all meals deductions are limited to 50%, you only get 50% of the per diem amount as a deduction on your tax return. For people who regularly travel to a farmers’ market in a high-cost city more than an hour from their farm, the amount can still add up to a large deduction.
You can also use the per diem method to reimburse employees for their out of pocket meals and incidentals on travel days. If you reimburse employees this way you do not need to include the amount in their taxable wages.This means you do not pay payroll taxes on the amounts and they do not pay income taxes on the amounts.
To claim the per diem deduction you must keep a written record of the business trip.
The record must be written and must include:
- Date
- Destination
- Business purpose of the trip
You can use any type of calendar to keep records of your business trips - a paper calendar, an app on your phone, a diary or a day planner. The important thing is that you have a written record of the date, destination and business purpose of the trip. .What is a business purpose for a trip? Anything that is “ordinary and necessary” to conducting your business.
Examples of business purposes for a trips are:
- Buy supplies or equipment
- Meet with a bookkeeper or tax preparer
- Meet with an insurance agent about business insurance
- Meet with a lender about a business loan
- Look at equipment you might buy to use in your business
- Meet with another farmer or an agricultural adviser to discuss ways to manage your production or your business
- Meet with a potential supplier to discuss buying from them
- Meet with a potential buyer to discuss selling your products to them
In order to qualify for the per diem deduction a trip must take you away from your "tax home" for more than 8 hours.
What is your "tax home"? Draw a circle around your farm going out as far north, south, east, and west as you would travel in a typical work day. Everything inside of the circle is your tax home. Everything outside of the circle is outside of your tax home. If you make trips outside of the circle, you may take a per diem deduction for your meals and incidental expenses for the day.
This resource is derived from materials developed by the University of Arkansas School of Law Agricultural Tax Training as part of the Agricultural Financial, Tax and Asset Protection (AgFTAP) partnership with the University of Arkansas Southern Risk Management Education Center and others.
