02-13-2013 01:38 AM
According to this:
Although the regulations under Section 132 extend the accountable plan rule to independent contractors providing services to the employer, the deemed substantiation rule for per diems paid to independent contractors is different than the rule for employees. Independent contractors may not use the per diem amounts that include lodging as well as meal and incidental expenses. For independent contractors, lodging expenses must be substantiated under the regular accountable plan rules in order to be excludable.
The IRS revenue procedure provides an optional method for employees and independent contractors who are not reimbursed when computing the amounts for business meals and incidental expenses (M&IE), or for incidental expenses only if no meal expenses are paid or incurred, while traveling away from home.
So, it seems to be the case that if you are paid on a 1099 from the employer and the ~employer~ does not pay you using per diem, then you have to keep the receipts around for the IRS for food, lodging, etc. In the case of per diem, it would be tax free. In the case of having to save receipts, my guess is that the IRS would only allow a percentage. If so, what is it?
Is the moral of the story to seek out contracts that provide per diems?
02-13-2013 02:26 AM
Also found this as well:
For tax purposes, categorizing travel expenses can be very simple. The costs fall into two categories: meals & entertainment, and everything else. That’s because everything else can be deducted at 100% while you may deduct only 50% of your meals & entertainment expenses.
Here is a list of typical travel costs:
02-13-2013 10:14 AM
Of course you can look for gigs that offer per diems, but if that well runs dry, why not scan and organize your receipts or get a credit card only for business travel. Major credit cards like American Express offer free spend analysis, a year-end summary and the ability to download your information into Quicken or Quickbooks. So, it's not difficult to collect your work-related expenses throughout the year and sort them out at tax time. Just a thought.
02-14-2013 11:22 PM
The fundamental difference between W-2 and 1099 isn;t based on travel expenses.
W-2 means that you are an employee. There is a "20 questions" rule that decides whether you are an employee or a independent business. If you worked on the employer's site, used their equipment and had hours and the manner in which you did the work determined by the employer, and if the employer had you working for a supervisor, then you were an employee. In that case it is illegal for you to be paid a 1099. If they force you to be a 1099, at the end of the job you can claim unemployment benefits, which means the state goes after them for the taxes. To dispute your status with the federal government, the last I knew, you have to file an SS8 form.
If you worked at home or in your own office space and did the work during the hours you chose and if the manner in which the work was determined by you, then you can quality as a 1099 independent business (possibly a sole proprietor). But this may mean extra taxes - self employment taxes because the employer didn't pay into your Social Security and Medicare. You might also have state B&O taxes and need a business license. It also means that you have to keep all your receipts and itemize deductions as fill out the profit and expenses form on your tax return.
Per diem vs. a profit and loss form is only a very minor part of 1099 vs. W-2. In a 1099 you are an independent vendor selling the client a product.
If you are forced by economic necessity to accept a 1099 status when you are really an employee, know that this could end up in a dispute. The employer may try to force you to sign a contract saying that you are not an employee. Try to avoid signing anything like that or cross it out when you return the contract and initial the crossing out and keep a copy, and even write that you don't accept that clause.
Of course if your goal is to own a business rather than being an employee, then take all the 1099s you want.
Here is another difference: In the 1099 world you are not on payroll, so there is a possibility they might not pay you or might delay in paying you. This can be true for small companies that are not selling enough product. Then you have to do collections. I had that experience and that is why I got out of the 1099 world a long time ago.
02-19-2013 12:55 AM
Thanks for the input.
For one project - now - I am on a W2 (to get payments on time). But - I have learned that the HH is taking a large chunk of it. They also wanted me to relocate - for this, I asked for a 1099 as there is no way I would be able to do my own house + a residence in another state on a W2. It's just not possible.
If I were working from home, W2 would be OK. Since work is in diff state, 1099 looks better because I have mortgage (tax home) and can deduct living expenses.
Does this make sense? Can one be an employee and still get per diem?
02-22-2013 04:22 AM
If you are W-2, suppose you are working out of state. Suppose you are getting $50 per hour base salary plus the per diem for the local area, say $20 per hour. That means you have $50 per hour salary (before taxes) for your home state expenses and $20 per hour that is not taxable that you have for the living expenses in the state where you are working. So you have $3200+ per month to live on in the remote state. Now clearly staying in one of those extended stay places isn't going to work. You have to rent from a private landlord. The type of housing is going to be different in different states. Apartment complexes in high tech areas may have short term rentals. So you could pay about $1000 of the $3200 for rent and then rent a car if it's too far to drive from your home state. So the per diem more than enough to live on.
On a 1099 basis you have to pay self employment tax on the entire $70 per hour and you only get itemized deductions. So you come out a lot worse with the same rate on a 1099 basis. And you may have to do collections to get paid. Then when the job ends you can't get unemployment.
1099 doesn't work unless you charge a lot more and have multiple clients (another chairacteristic of 1099 I forgot to mention above).