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Old 06-08-2006, 01:13 PM
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Join Date: Dec 2005
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Default 1099 and per diem


First of all I love this forum because I get very good inputs and I don't know what I would have done without this forum and inputs from people like Old Jack.

I have a question:
I have an S corp. I have a consultant on 1099 who is travelling for his current project. The distance is more than 50 miles. He wanted to claim per diem on the invoice. He also wanted me to exclude the per diem amount from his year-end 1099. Here is an example of a weekly invoice:

40*30 $1200
100/day per diem $ 500

Is this possible? If it is really possible and legal, how do I account the per diem in my S corp accounting?

Appreciate your help and input.

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Old 06-08-2006, 03:19 PM
Posts: n/a

You state that this person is not your employee and is treated as a 1099 independent contractor/consultant. Therefore, non-taxable per diem paid by you is not appropriate as it is only for employee travel (see quote below). As the consultant is not accounting to you for actual expenses (if per diem paid) you must include the entire payments on the 1099.

If the consultant invoices you specifically for actual travel expenses and provides receipts and/or an accounting (who, what, where, when, and why) you may reimburse the consultant for those expenses and NOT add them to the 1099. They would not be income to the consultant and the consultant could not deduct his actual expenses for the same. Note that in this case you would not be able to deduct 50% of any meals you so reimbursed.

Originally Posted by Pub 1542, Per Diem Rates, Page 1 :

This publication is for employers who pay a per diem
allowance to employees for business travel away from
home within the continental United States (CONUS), on or
after October 1, 2003, and before January 1, 2006. It gives
the maximum per diem rate you can use without treating
part of the per diem allowance as wages for tax purposes.

Originally Posted by Pub 463, “Travel, Entertainment, Gift, & Car Expenses”, Page 28 :

Per Diem and Car Allowances
If your employer reimburses you for your
expenses using a per diem or a car allowance, you
can generally use the allowance as proof for the
amount of your expenses. A per diem or car
allowance satisfies the adequate accounting
requirements for the amount of your expenses
only if all of 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 are not 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

If the IRS finds that an employer’s travel allowance
practices are not based on reasonable accurate
estimates of travel costs (including recognition of
cost differences in different areas for per diem
amounts), you will not be considered to
have accounted to your employer. In this case,
you must be able to prove your expenses to the
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Old 06-08-2006, 03:41 PM
Junior Member
Join Date: Dec 2005
Posts: 0
Default Thank you Old Jack

Old Jack, you are the best!

Your detailed information really helps and clarifies all my doubts. Appreciate your help. Thanks for your time.

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Old 06-08-2006, 05:16 PM
Posts: n/a

You are welcome RPG... good luck with the business.
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