How does Per Diem work?

How does per diem work with the IRS?

• I'm working on my 07 tax returns and I spent a month working in Naples. I was reading the bulletin and it said that Naples rates are $174 a day for the Federal per diem rate and $148 a day for the high-low substantiation. Which one should I use? I worked as a telephone contractor for this time, and had an address in Seattle. I didn't save any of my travel receipts because years ago I was told by my accountant that per diem was similar to the car expense where you either write off miles based on a given rate, or save receipts for actual expenses. I was told you could either use the per diem rate, or save receipts and write off actual travel expenses. I don't have any receipts, but I was gone, can I still legitimately take this deduction? Also, how long can you work out of state for it still to be considered travel? I worked in the same location for 7 months in 06, does per diem have a time limit? After a length of time, is a place you travel to work considered your place of residence? Thank you

• Answer:

  IRS pub 463 and 1542. You need proof that you were actually in Naples FL. Receipts would have helped you. Exact dates are required. Naples is considered a high expense are for part of the year. (This is the high-low deal.) You need proof that a) your tax home was in Seattle (not just an address but a home that you were paying for) and b) that the assignment in Florida was temporary in nature and expected to last less than 1 year. (Multiple assignments to the same destination will sink this.) Your contracts are evidence of this. Third, you need a medium amount of expense to go with your W-2. This is because the money is a 2% deduction on the schedule A *and* and addback for AMT. Also note, this is a popular audit area. If you gave up your tax home and moved to a trailer in Floriday for the duration, then NOTHING is deductible.