Per Diem (Meals/Lodging) Deduction for Truck Driver with S-Corp

[Mirch]

Truck Driver (owner-operator) is a sole owner and W2 employee in an LLC taxed as an S-Corp. His company (S-corp) gets 1099. He is an Individual subject to “hours of service” limits. How can he claim per-diem for the days he was on the road instead of deducting actual expenses for food/etc? One tax advisor said that there is no way to use per diem deduction unless he would be doing Schedule C. Other source says that you can add per-diem on W2 (not clear if that requires to actually pay it to the employee with the wage).

1. In which case one can deduct per diem other than using Schedule C.

2. Is there a way to deduct per diem by paying it with the payroll? 

3. If he will be deducting actual meal expenses as company expenses, he deducts 80% as per the IRS "hours of service" rule or 100%?

[Critter]

One tax advisor said that there is no way to use per diem deduction unless he would be doing Schedule C.   For tax years 2018 to 2025 ( or until the laws change again) employees cannot deduct these on the Sch A any longer.  Only the self employed filing a sch C can take a deduction.

Other source says that you can add per-diem on W2 (not clear if that requires to actually pay it to the employee with the wage).    Adding it to the wages is an option. 

1. In which case one can deduct per diem other than using Schedule C.   No they cannot.

2. Is there a way to deduct per diem by paying it with the payroll?    On the S-corp it will absorb the deduction because it will be paid thru reimbursing the employee. The per-diem allowance method can’t be used to substantiate business travel expenses incurred by a person who owns more than 10 percent of an S corporation. So, if that’s your situation, no dice. Instead, you must turn in proof of your actual travel expenses to the corporation. You can then receive tax-free reimbursements from the company.

3. If he will be deducting actual meal expenses as company expenses, he deducts 80% as per the IRS "hours of service" rule or 100%?   Nothing is deducted on the personal return at any percentage.

I think you need to do some reading on accountable vs nonaccountable plans and how this is handled by the employer and employee ...  

https://www.irs.gov/pub/irs-pdf/p463.pdf

[Mirch]

Other source says that you can add per-diem on W2 (not clear if that requires to actually pay it to the employee with the wage).    Adding it to the wages is an option. 

-in which case thats an option?

how exactly to do that, just add as a separate line in payroll?

IRS publication is helpful but I still have questions. Do you know any good articles on that?

If the employee would not be a relative, we could use per diem, right?

What about the expense reports? We need to do and keep these reports, but how detailed should they be? I know when you deduct per diem for independent contractor you just need to keep record of when he was away from home without the actual expenses. How that works in case when you per diem add to w2?

[Critter]

This forum is for income tax questions not payroll situations ... may I suggest you seek local payroll assistance to make sure you have all the correct items for both federal and state taken care of and filed timely.  

[Mirch]

In my opinion, my questions are directly related to tax deductions and tax planning. Thank you for the suggestion but it doesn't seem relevant. 

[Critter]

This forum is to help TT users to complete returns using the TT program and not to educate you in tax planning or non tax issues  and you seem to  need more help than a short answer in this forum  and I am only suggesting you seek professional guidance to get things done correctly  if the IRS publications are not sufficient ... https://www.irs.gov/pub/irs-pdf/p15.pdf

[prishchepov]

Do you mind to stop the BS? I shall NOT use the service of Turbo after reading that complete crap. I had no problems with H&R Block for the last 20 years.

[bmk74]

Hello Critter,

Could you send me a link for your statement regarding a more than 10% owner of an S corp not being allowed to use the per diem rates?  I have not been able to find any IRS documentation anywhere.

[AliciaP1]

The 10% ownership rule applies to personal non-reimbursed business deductions and does not affect using the per diem rates, but rather the fact that specific documentation pertaining to the expenses covered by the per diem issued must be maintained.  

Per IRS Pub 463 (revised in 2021):

A per diem or car allowance satisfies the adequate accounting requirements for the amount of your expenses only if all the following conditions apply. 

• Your employer reasonably limits payments of your expenses to those that are ordinary and necessary in the conduct of the trade or business. 

• The allowance is similar in form to and not more than the federal rate (defined later). 

• You prove the time (dates), place, and business purpose of your expenses to your employer (as explained in Table 5-1) within a reasonable period of time. 

• You aren’t related to your employer (as defined next). If you are related to your employer, you must be able to prove your expenses to the IRS even if you have already adequately accounted to your employer and returned any excess reimbursement.

• Related to employer
  • You are related to your employer if: 
    • Your employer is your brother or sister, half-brother or half-sister, spouse, ancestor, or lineal descendant; 
    • Your employer is a corporation in which you own, directly or indirectly, more than 10% in value of the outstanding stock; or 
    • Certain relationships (such as grantor, fiduciary, or beneficiary) exist between you, a trust, and your employer

Here is the Link to the Publication section.

@bmk74