Per Diem Often Advantageous for Business Travel

Hi June,

I have been a marketing consultant for three years. I have an obscure question on business expenses.

When I travel to Washington DC to visit a client and prospects I stay with my sister because it is nicer and less expensive than staying in a hotel. As a thank you, I take her and my brother-in-law out to dinner one night. Total bill has ranged from $100-$150. (I typically stay two or three nights). Should I classify this as deductible meals and entertainment which is limited to 50% of the expense or as a gift which is limited to only $25? Or something else or nothing?

Best regards,
Suzanne ... from Dutchess County, NY


Dear Suzanne,

It is clearly a thank-you gift and so is limited to a $25 deduction. For it to be a business meals & entertainment expense you must discuss business before, during or after the meal or the entertainment.

However, are you aware that when traveling you may deduct a per diem amount for meals and incidentals rather than use actual expenses? I explain it this way in my book, Self-employed Tax Solutions:

Alternative Travel Records
For most of your travel expenses you will have receipts of some sort – cancelled checks, credit cards slips, or cash receipts. Well, after its own fashion the IRS has tried to make recordkeeping for travel easier. Yet, as is ever the case with IRS regulations, it is not self-employeds for whom easier recordkeeping was set up but for employers and employees; the self-employed just happen to benefit from the crumbs that fall from the table.

The IRS has issued per diem (per day) charts. These charts list the maximum amounts allowed to be deducted without receipts for “LODGING” and for “MEALS + INCIDENTALS.” Self-employeds may use the amounts listed for MEALS + INCIDENTALS only.

So, if you do not have receipts for all of your travel meals, then be sure to ask your tax pro about using the alternative per diem method. In your case, a two day/two night stay in Washington DC would get you a $71 X 2 = $142 M&E deduction [2009 rate] as well as your gift to your sister.

Here is the link for the IRS domestic per diem chart .

Best regards,
June