Per diem tax breaks just got a lot simpler -- and more valuable -- for owner-operators
At the time of Heine's June story, ATBS Tax Manager Michael Schneider laid out a scenario where an owner-op was away from home for three weeks, eating three meals a day for a grand total of 63 meals. "If you purchased 28 of those meals at a restaurant, then 44% of your meals would be considered purchased at restaurants,” he said.
Under the formula ATBS had worked out with the IRS at the time, 44% of the per-diem for that three-week period would be deductible at the 100% rate. (Deductible amounts in this scenario shown below in bold.)
21 per diem days X $66 = $1,386
44% of $1,386 = $609.84
The remainder, 56%, would then be deductible at the 80% rate.
56% of $1,386 = $776.16
80% of $776.16 = $620.93
If you think that could get pretty complicated over the course of an entire calendar year, you'd be right, particularly given the per diem basis change as of October 1 to a daily $69.
When ATBS President Todd Amen joined Overdrive for the October 21 live session, Amen noted the firm was basically for the first time urging most owner-operators to track meals and keep the receipts (for back-up in the case of an audit) to reap added savings under the formula. The relevant part of the discussion starts at the 50:30 mark in the video.
Amen noted today, though, that the IRS's recent clarification dramatically simplifies matters for owner-operators, also delivering tax savings. In the above three-week example, it will mean that the entire $1,386 worth of per diem is deductible, or almost $160 more than under the complicated percentage formula based on actual restaurant meals.
Spread out over the entire tax year, take another example Schneider laid out in prior reporting: Assume 300 per diem days in 2021, with a fourth of them, or 75, occurring after the October 1 per diem hike to $69. Given to claim 100% per diem for those days an owner-operator will only have to keep records -- logbooks, settlements, the like -- proving time spent on the road, the calculations (and the tracking, of course) get much simpler.
225 days X $66 = $14,850
75 days X $69 = $5,175
Total deductible for the year = $20,025
That's $4,005 higher than it would otherwise be with standard 80% deduction rules in place. For a taxpayer in the 22% marginal tax bracket, applicable to individual earners with annual income between around $40K up to almost $90K, that's an extra $900 that will stay in the business account.
For full-year 2022, at the $69 per diem rate, savings over standard $80 percent treatment will top $1000 for those taxpayers among owner-operators.
[Related: Strong freight, rates environment expected to last through 2022]
ATBS also emphasized in its recent notice about these changes, which you can read in full here, that so-called "partial days" away from home are deductible as well -- at a reduced rate. For most owner-operators, ATBS said, a partial day should be claimed on days you left home for at least an overnight -- and days you came back, having overnighted elsewhere. "On the days that you depart and the days that you arrive at home," ATBS said, "you must claim a partial day allowance instead of a full day allowance." That's computed as 3/4 of the standard allowance, or $51.75 for today's $69 per diem.
The firm recommends keeping a calendar for your per diem tracking, marking days totally away from home with an X and partial days with a single slash. For clients, the ATBS mobile app now includes a per-diem-tracker function that simplifies tracking and output directly to ATBS at tax time.