Acceptable Per Diem Expenses
Per Diem is broken into two categories: Lodging and Meals & Incidentals.
Within the Continental United States (CONUS) the Lodging Per Diem rates include only the base cost of a hotel or other quarters. Hotel and room taxes must be reimbursed separately or deducted individually. Outside the Continental United States (OCONUS) Per Diem rates are set by the Department of State. The Dept. of State Per Diem rates DO include all hotel/room taxes so you may not separately deduct lodging taxes for travel abroad.
Meal and Incidentals Expenses (M&IE) includes cost of meals and fees or tips paid to baggage carries, hotel staff, or staff on a ship. All other ordinary and necessary expenses incurred during business travel that are not included in M&IE may be deducted.
Deductible business travel expenses include the cost of:
- Travel by air, train, bus, car, or ship between your home and your hotel. (If your travel is free for any reason, such as rewards through a frequent flier program, your costs are zero.)
- In and around transportation at your destination. This includes the cost of a rental car or the standard mileage rate for driving a personally owned vehicle. You may only deduct the business-use portion of your rental car and mileage.
- Tolls and parking fees incurred during business related travel.
- Taxi and public transit fares used for business travel.
- Lodging and M&IE Per Diem amount
- Tips you pay for services related to any of these expenses. (You may not separately deduct the fees or tips that are included in M&IE).
- Laundry and dry cleaning.
- Internet/WiFi, business calls, fax machines, and other communication devices used while on your business trip.
- Other expenses related to your business travel. The IRS simply states that the expenses must be "ordinary and necessary" and may not be lavish. Acceptable expenses a notary, stenographer, renting of necessary equipment, etc.
- Checked luggage and transportation of tools or equipment.
Alcohol is not included in Meals Per Diem and therefore can deducted separately. Private employers are free to cover the cost of alcohol or not.
The items you deduct are credited at 50%. So, you will receive a reduction in your taxable wage equal to half the amount claimed. If you work in the transportation industry as a pilot or steward/stewardess your taxable wage will get credit for 80% or the amount claimed.