Using Per Diem as a self-employed under my S-corp as a healthcare traveler

[TMM13]

I'm a healthcare traveler providing 1099 contracts under my S-Corp. I must relocate for 8 to 13 weeks near customer location to provide on-site services. I'm not sure about the best way to record the travel expenses from the S-Corp perspective. How can I use the Per Diem for meals and lodging as a self-employed by my own S-Corp?

[rjs]

There is no such thing as "self-employed under my S-corp." If you work for an S corp you are not self-employed. You are an employee of the S corp, even if you are the only shareholder of the S corp. An S corp is a separate legal entity from yourself. The S corp has to file its own Form 1120-S tax return, separate from your personal Form 1040 tax return. The S corp has its own tax ID number, which is an EIN.

When a shareholder performs services for an S corp, the S corp must pay the shareholder a "reasonable salary." The S corp has to withhold payroll taxes and issue a W-2 to the shareholder-employee at the end of the year.

As a W-2 employee, you cannot deduct any job-related expenses that you pay personally, such as travel. If the S corp pays the travel expenses, that would be a business expense on the S corp's tax return.

It's not clear exactly what you mean by "1099 contracts." Does the customer have a contract with the S corp or with you personally? Does the customer pay you personally or do they pay the S corp? What kind of 1099 does the customer issue? Is it a 1099-MISC, a 1099-NEC, or another type of 1099? There is no plain Form 1099. Is the 1099 issued to you (with your name and Social Security number) or to the S corp (with the name and EIN of the S corp)? A 1099 is not normally issued to a corporation, including an S corp.

The Form 1120-S tax return filed by the S corp will include a Schedule K-1 for each shareholder. So as an employee and shareholder you get both a W-2 and a Schedule K-1 from the S corp. You have to enter both of them into your personal Form 1040 tax return.

The due date for the S corp tax return is March 15, not April 15. If the S corp did not file by March 15, and did not file an extension, the penalty for late filing is fairly high and there is an additional penalty each month.

Your state may have additional tax requirements for an S corp.

You should consult an accountant who specialized in small businesses to discuss the proper way to handle the accounting and taxes for your S corp, including how to handle the travel expenses.

[TMM13]

Thanks for clarifying. The customer will issue a 1099-NEC to the S-corp. The S-corp will pay for the travel expenses. How the S-corp should pay me as an employee the travel expenses, itemized or Per Diem?

[rjs]

A 1099-NEC is not supposed to be issued to a corporation, except for payments to attorneys or payments made by a federal executive agency. Neither of those exceptions seems to apply to you. I still think you need to consult a local accountant about how to structure your business correctly.

[rjs]

Your accountant will be able to advise you about how to handle the travel expenses after he or she reviews the details of your business and your overall business and personal tax situation.