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SERVICES
AVAILABLE OCTOBER 2004 PER-DIEM ALLOWANCES; USE DIFFERENT STROKES FOR DIFFERENT FOLKS Uncle Sam often examines a deductible travel expenses through a magnifying glass. So both employers and employees must meet strict recordkeeping rules-or face the consequences.Fortunately, you can take a shortcut. Use IRS-approved per-diem allowance rates in lieu of accounting for every bagel and cab ride from an employee’s business trip. The per-diem reimbursements are tax-free to employees up to the government-approved levels. And your company can deduct the reimbursement payments, subject to the 50% limit for meals. Choose most-favorable method But there’s one thing most people don’t realize: Nothing says you have to use the same method for all employees. So you can use the per-city method for Employee A and the “high/low” method for Employee B. Choose whichever provides better results. Note: If you’re a business owner wondering which method to use for yourself, forget about it. You can’t use either type of per-diem allowance if you own 10% or more of the company. Why use per diems? As long as your employees properly account for their actual business travel expenses, including meals and lodging, employer-paid reimbursements are tax-free to the employees. Plus, your company can deduct the reimbursement payments, subject to the 50% limit for meals. The problem tracking all those travel receipts can be a recordkeeping nightmare. But with a per-diem allowance, employees don’t have to keep receipts for every expense. Your company simply pays the government-approved allowance-no muss, no fuss. Employees don’t even have to report the payments on their tax return. But they still must substantiate the time, place and business purpose of their business travel (see below). Which rate for which employees? As stated earlier, the IRS lets you decide between using a “per-city” per-diem rate or the “high/low” rate. Per-city rate: The Government Services Administration (GSA) updates the regional per-diem rates each year. Find an interactive map that shows all city-specific rates for lodging, meals and incidentals at www.gsa.gov/perdiem. High/low rate: The GSA also issues an annual list of “high-cost” areas. Any locality that isn’t considered “high-cost” is subject to the "low-cost" per-diem rate. The list of high-cost areas includes no-brainers like New York and Chicago. But it can also feature locales such as Traverse, Mich., and other areas may be included on the list on a seasonal basis, such as Vail and Aspen in the winter. Through October 31, 2004, the per-diem rate for travel in high-cost areas is $207 ($161 for lodging and $36 for meals and incidentals). Advice: To reduce the paperwork burden, you’ll probably do best using the high/low method for employees who travel extensively, especially if they typically travel to major cities. On the flip side, you can require employees to use the specific location method if they frequently travel to low-cost areas. Or you can require employees who travel infrequently to keep detailed records of their actual expenses. No free lunch: Per-diems require some recordkeeping The beauty of the per-diem method is that you don’t have to account for and keep records on every employee business travel expense. But don’t get carried away; a minimal amount of paperwork is still needed. Specifically, your employees must still provide documentation regarding the time, place and business purpose of their travels. The best way to collect this basic data? Use a simplified travel expense reimbursement request form. It’s really no extra work for you, because you should already require this information before issuing employee reimbursement checks for transportation costs (by plane, train or automobile) to out of town gigs. Source: Research Recommendations
BEWARE -NEW AUDITS AGAINST HIGH EARNERS
Internal Revenue Service audit rates are slowly rising after
bottoming out in 2000. Just released IRS statistics from fiscal 2003
confirm this trend, but they show the biggest increase coming in against
people with incomes above $100,000. The audit rate for those
higher-income taxpayers rose 1.6 percent last year, up from 0.86 percent
in 2002. That’s still historically low (that rate hit 3.21 percent in
1996), but the IRS promises it will shoot higher.
PERSONAL EXEMPTION EXPECTED TO RISE $100 IN
2005
The personal exemption will rise to $3,200 in 2005, up $100 from this
year, according to Bruce Scobel, corporate vice president and actuary
for New York Life Insurance Co. The Internal Revenue Service is required
to release official inflation adjustment rates by December 15. Scobel
provides estimates of the adjustments each year. The standard deduction
will be $5,000 for single filers and $10,000 for married taxpayers
filing jointly, Scobel estimates. The personal exemption phase-out level
will rise in 2005 to $145,590 for single filers, and $218,950 for
married joint filers, he says. If you sold your principle residence last year,
make sure to follow new taxpayer-friendly rules that will help you avoid
capital gains tax. |
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