Per Diem Allowance for Meals and Incidental Expenses (M&IE) Only

A per diem allowance for meal and incidental expenses (M&IE) only may be used to substantiate an employee's or other payee's M&IEs for purposes of the employer's return (Rev. Proc. 2011-47). The amount that is deemed substantiated is equal to the lesser of the per diem allowance or the amount computed at the federal M"&IE rate for the locality of travel for the period that the employee is away from home. If M&IEs are substantiated using a per diem allowance, the entire amount is treated as a food and beverage expense subject to the 50-percent limitation on meal and entertainment expenses.

The M&IE rate must be prorated for partial days of travel away from home. If an employee's meals are provided by the employer, even though the employee may be working from home, the employee is entitled to deduct only the incidental expense portion of the applicable federal per deim M&IE rates (R.J. Zbylut, Dec. 57,348(M), 95 TCM 1172 (2008)).

Self-Employed Persons and Employees. Self-employed individuals and employees whose expenses are not reimbursed may also use the M&IE-only rate to substantiate M&IEs while traveling away from home. The taxpayer must actually prove through adequate records or sufficient corroborative evidence the time, place, and business purpose of the travel, and lodging costs.

Optional Method for Incidental-Expense-Only Deduction. Taxpayers may use an optional method to deduct only incidental expenses in lieu of using actual expenses. Taxpayers who do not incur any meal expenses may deduct $5 per calendar day (or partial day) as ordinary and necessary incidental expenses, paid or incurred, while traveling to any localities within the continental United States (CONUS) or outside the continental United States (OCONUS) (Notice 2017-54, Notice 2016-58). The optional method is subject to the proration rules for partial days and substantiation requirements for taxpayers who use the per diem method for substantiation (Rev. Proc. 2011-47). The optional method for incidental expenses only cannot also be used by taxpayers who use the lodging plus M&IE per diem method, the M&IE-only method, or the high-low method and the optional M&IE-only mnethod

Transportation Workers. The M&IE rates for travel awy from home on or after October 1, 2017, for both self-employed persons and employees in the transportation industry are $63 for CONUS localities and $68 for OCONUS localities. The M&IE rates for travel away from home on or after October 1, 2016, for both self-employed persons and employees in the transpotation industry are $63 for CONUS localities and $68 for OCONUS localities (Notice 2017-54, Notice 2016-58). An individual is in the transportation industry only if the individual's work: (1) directly involves moving people or goods by airplane, barge, bus, ship, train, or truck; and (2) regularly requires travel away from home that involves travel to localities with differing federal M&IE rates during a single trip.

Under a calendar-year convention for the transportation industry, taxpayers who used the federal M&IE rates during the first nine months of calendar year2017 to substantiate an individual's travel expenses may not use the special transportation industry rates for that individual until January 1, 2018 (Rev. Proc. 2011-47). Likewise, taxpayers who used the special transportation industry rates for the first nine months of calendar year 2017 to substantiate an individual's travel expenses may not use the federal M&IE rates for that individual until January 1, 2018.

Per Diem Allowances for Lodging Plus Meals and Incidental Expenses (M&IE)

Under the lodging plus meals and incidental expenses (M&IE) per diem method, the amount of an employee's (or other payor's_ reimbursed expenses that is deemed substantiated (for purposes of the employer's return) is equal to the lesser of the employee's per diem allowance or the federal per diem amount for the locality of travel for the period in which the employee is awy from home (Rev. Proc. 2011-47). The employer is not required to provide lodging receipts if per diem allowances are used to substantiate such expenses. The locality of travel is the place where the employee stops for sleep or rest. Employees and self-employed individuals may determine their allowable deductions for reimbursed M&IE while away from home by using the applicable federal M&IE rate. However, unreimbursed lodging costs must be substantiated by required records.

Per Diem Rates. The federal per diem rate for lodging plus M&IE depends upon the locality or travel. For various geographic areas within the continental United States (the 48 contiguous states plus the District of Columbia) (CONUS), the federal per diem rate for a given locality is equal to the sum of a maximum lodging amount and the M&IE rate for that locality. There are also federal per diem rates for nonforeign localities outside of the continental United States (OCONUS), such as Alaska, Hawaii, Puerto Rico, and U.S. possessions. Rates are also established for foreign travel (foreign OCONUS).

Rates for CONUS, OCONUS, and foreign travel are published under the Federal Travel Regulations for government travel and are updated periodically (Rev. Proc. 2011-47). The travel rates are issued to coincide with the government's fiscal year of October to September.

High-Low Method. Instead of using the maximum per diem rates from the CONUS table, taxpayers can compute per diem allowances for travel within the continental United States under the high-low method, which is a simplified method for determining a lodging plus M&IE per diem. This ethod divides all CONUS localities into two categories: low-cost or high-cost localitiesa (Rev. Proc. 2011-47).

For travel on or after October 1, 2017, through September 30, 2018, the following per diem rates for lodging expenses and M&IE are used for high-cost and low-cost localities (Noltice 2017-54):

High-cost locality -- Lodging Expense Rate = $216; M&IE Rate = $68; Maximum per diem rate = $284

Low-cost locality -- Lodging Expense Rate = $134; M&IE Rate = $57; Maximum per diem rate = $191

For travel on or after October 1, 2016, through September 30, 2017, the following per diem rates for lodging expenses and M&IE are used for high-cost and lkow-cost localities (Notice 2016-58):

High-cost locality -- Lodging Expense Rate = $214; M&IE Rate = $68; Maximum per diem rate = $282

Low-cost locality -- Lodging Expense Rate = $132; M&IE Rate = $57; Maximum per diem rate = $189

Some areas are treated as high-cost during certain periods of the year (e.g., peak tourist season) and as low-cost during other periods. Thus, employers who use the high-low method must determine whether the employee traveled in a high-cost area and if the area was classified as high-cost during the actual period of travel.

If the high-low method is used for an employee, then the payor may not use the actual federal maximum per diem rates for that employee during the calendar year for travel within CONUS. For travel outside CONUS, the employer may use the applicable federal OCONUS rates, the M&IE-only rate, or reimbursement of actual expoenses.

Proration of M&IE Allwance. If an individual is traveling away from home for only a portion of the day, these are two alternative methods that may be used to prorate the per diem rate or the M&IE rate. Under the first method, 75 percent of the M&"IE rate (or the M&IE portion of the per diem rate) is allowed for each partial day during which an employee or self-employed individual is traveling on business. Under the second method, referred to as the reasonable business practice method, the M&IE rate may be prorated using any method that is consistently applied and in accordance with reasonable business practice. For example, if an employee travels from 9:00 a.m. one day until 5:00 p.m. the next day, a proration method that gives an amount equal to two times the M&IE rate is treated in accordance with reasonable business practice (Rev. Proc. 2011-47).

Transition Rates. Taxpayers may continue to use the per diem rates effective prior to October 1, 2017, for the remainder of 2017, or they may begin to use the new per diem rates for reimbursement for travel, as long as they use either the pre-October 1 rates or the updated rates for the October 1 through December 31 period consistently. Taxpayers who used the per diem method or the high-low substantiation method to reimburse travel expenses during the first nine months of calendar year 2017 must continue to use that method for the remainder of the calendar-year 2017. Taxpayers who use the high-low method during the first nine months of calendar-year 2017 may either continue to use the rates and localities in effect before October 1, 2017, or use the updated rates and localities in effect for travel on and after October 1, 2017, as long as they use the same rates and locations consistently for all employees reimbursed under the high-low method.

Per Diem Methods for Substantiating Meals and Lodging Expenses

A taxpayer must substantiate the amount, time, place, and business purpose of expenses paid or incurred in traveling away from home. Although the taxpayer has the option of keeping the actual records or travel expenses, the IRS has provided per diem allowances under which the amount of meals and incidental expenses (M&IE) may be deemed to be substantiated. The per diem allowances eliminate the need for substantiating actual costs (Rev. Proc. 2011-47). A taxpayer who uses per diem allowances to calculate the deductible amount must still substantiate the time, place, and business purpose of the travel by adequate records or other evidence.

Although most frequently used in the exployer-employee relationship, per diem allowances may be used in arrangements between any payor and payee, such as between independent contractors and those contracting with them. However, employees related to the payor under the related party rules of Code Sec. 267(b) (using a 10-percent common ownership standard) cannot use per diem substantiation methods.

Employees. The per diem method can be used to substantiate an employee's reimbursed expenses (for purposes of the employer's return) only if the reimbursement arrangement is an accountable plan and the allowance:

• is paid with respect to ordinary and necessary expenses incurred or that the employer reasonably expects to be incurred by an employee for lodging and/or M&IE while traveling away from home in connection with the performance of services as an employee;
• is reasonably calculated not to exceed the amount of the expense or the anticipated expenses; and
• is paid at the applicable federal per diem rate, a flat rate, or stated schedule.

Types of Per Diem Allownaces. There are three types of per diem allowances:

• lodging plus M&IE, which provides a per diem allowance to cover lodging as well as meals and incidental expenses;
• M&IE only, which provides a per diem allowance for meals and incidental expenses only; and
• incidental expenses only, to be used when no meal or lodging expenses are incurred (Rev. Proc. 2011-47).

Incidental expenses has the same meaning as in the Federal Travel Regulations (41 C.F.R. 300-3.1). Under those regulations, incidental expenses include only fees and tips given to porters, baggage carriers, hotel staff, and staff on ships. Transportation between places of lodging or business  and places where meals are taken, and the mailing cost of filing travel vouchers and paying employer-sponsored charge card billings, are not incidental expenses. Taxpayers using per diem rates may separately deduct or be reimbursed for such transportation and mailing expenses (Notice 2017-54; Notice 2016-58).

Expenses of laundry, lodging taxes, and telephone calls are not incidental expenses (IRS Pub. 463). Lodging taxes for travel within the continental United States and for nonforeign travel outside the continental United States are reimbursable miscellaneous expenses. However, lodging taxes have not been removed from the foreign per diem rates set by the U.S. State Department (41 C.F.R. 301-11.27).

Allowances Exceeding Federal Rates. If expenses are substantiated using a per diem amount, regardless of whether it covers lodging plus M&IE or only M&"IE, any reimbursement that exceeds the relevant federal per diem rates for that type of allowance must be included in the employee's (or independent contractor's) gross income. The excess portion is treated as paid under a nonaccountable plan, thus it must be reported on the employee's Form W-2 and is subject to withholding (Rev. § 1.62-2(h)(2)(i)(B)(1)).

Per Diem Allowances Subject to Withholding

If the amount of an employee's business expenses are substantiated through the use of an IRS-approved per diem allowance, any amounts paid by the employer to the employee exceeding the amounts deemed substantiated are treated as  paid under a nonaccountable plan and subject to income tax withholding and other employment taxes (Reg. §§ 1.62-2(h)(2)(i)(B) and 31.3401(a)-4(b)(1)(ii)).

For per diem or mileage allowances paid in advance, withholding on any excess must occur no later than the first payroll period following the payroll period in which the expenses paid (i.e., the days or miles of travel) are substantiated by the employee. For a per diem or mileage allowance paid as a reimbursement, the excess amounts reimbursed are subject to withholding when paid.

Tax Cuts & Jobs Act of 2017: What You Need to Know

The Tax Cuts and Jobs Act is a United States Congressional bill to amend the Internal Revenue Code of 1986, effectively altering the rate of taxation for individuals and businesses. Major components of the Act include:

• Reducing tax rates for individuals and businesses;
• Increasing the standard deduction and family tax credits;
• Limiting the mortgage interest deduction;
• Limiting the Alternative Minimum Tax for individuals and eliminating it for corporations;
• Reducing the number of estates impacted by the estate tax; and
• Reducing the penalty for the individual mandate of the Affordable Care Act (ACA).

There are items in the Act that will affect employers and employees alike. Regardless of the extent of changes employers and employees are faced with due to legislative changes, you can rest assured that MasterType Accounting & Business Services, P.C. is staying up-to-date and ensuring your business is ready to comply with any and all new requirements.

Withholding Tables / Tax Rates

What You Need to Know as an Individual Taxpayer

• Tax rates will reduce for all tax brackets for married & single taxpayers with the highest tax bracket dropping to 37 percent.
• The Supplemental Tax Rate will be set to 22 percent for payments up to $1 million and 37 percent for bonus payments in excess of $1 million paid after January 1, 2018.
• The number of income tax brackets remain at seven, but the income ranges in several brackets have been updated.

What You Need to Know as an Employer

• The IRS has posted the updated tax withholding tables to IRS.gov, showing the new rates for employers to use during 2018.
• Employers should begin using the 2018 withholding tables as soon as possible, but no later han February 15, 2018.

Exemptions

What You Need to Know as an Employer

• Since personal exemptions were eliminated, this required changes to Federal Forms W-4, Employee's Withholding Allowance Certificate.
• The IRS has stated that a new form may not be released until March 2018.
• Until the new form is available, employers must use the prior versions.
• Any exemptions claimed on Form W-4s completed before the new form is released will be null.
• The removal of personal exemptions will happen concurrently with the release of the new withholding tables.

Fringe Benefits

What You Need to Know as an Employer

Several items that previously were not subject to Federal Employment tax are now required to be added to gross wages and subject to Federal Income, Social Security, Medicare, and FUTA taxes.

• These items include: Moving Expense Reimbursements, Exclusion for Bicycle Commuting Reimbursements, and Employee Achievement Awards.
• Employers will need to update any deductions used for these reimbursements to include them as wages, subject to Federal Income Tax Withholding, Social Security, Medicare, and SUTA taxes.

Busines Income Tax Deductions Eliminated

What You Need to Know as an Employer

The Act also contains repeals of deductions from business income tax such as:

• Eating facilities (meals furnished for convenience of employer)
• Entertainment Expenses
• Settlements - Sexual Harassment
• Transportation Fringe Benefits

Family and Medical Paid Leave

What You Need to Know as an Employer

• A business tax credit is now available if certain requirements are met.
• Qualified paid leave does not include paid family leave benefits provided under a state plan.
• Employers may need to track leave in order to determine eligibility of the credit.
• For MasterType Accounting & Business Services, P.C. (MABS) clients, MABS will monitor the requirements and determine any required changes to reports or analytics to aid in determining eligibility.

A Final Note

Many provisions of this Act are set to expire on December 31, 2025. If no legislation is passed to extend the tax changes beyond that date, tax rates and exemption rules will revert to 2017 law.

Tax Scams — How to Report Them

The IRS would like your help in identifying promoters of “too good to be true” abusive tax schemes, and tax preparers using illegal schemes to avoid paying taxes.

Use the Report Suspected Abusive Tax Promotions or Preparers form to make a referral to the IRS. Learn more about the role of the IRS Lead Development Center and its efforts to stop abusive tax schemes at IRS.gov/scams.

These Tax Credits Can Mean a Refund for Individual Taxpayers

Taxpayers who are not required to file a tax return may want to do so. They might be eligible for a tax refund and don’t even know it. Some taxpayers might qualify for a tax credit that can result in money in their pocket. Taxpayers need to file a 2017 tax return to claim these credits.

Here is information about four tax credits that can mean a refund for eligible taxpayers:

• Earned Income Tax Credit. A taxpayer who worked and earned less than $53,930 last year could receive the EITC as a tax refund. They must qualify for the credit, and may do so with or without a qualifying child. They may be eligible for up to $6,318. Taxpayers can use the 2017 EITC Assistant tool to find out if they qualify.
• Premium Tax Credit.Taxpayers who chose to have advance payments of the premium tax credit sent directly to their insurer during 2017 must file a federal tax return to reconcile any advance payments with the allowable premium tax credit. In addition, taxpayers who enrolled in health insurance through the Health Insurance Marketplace in 2017 and did not receive the benefit of advance credit payments may be eligible to claim the premium tax credit when they file. They can use the Interactive Tax Assistant to see if they qualify for this credit.
• Additional Child Tax Credit. If a taxpayer has at least one child that qualifies for the Child Tax Credit, they might be eligible for the ACTC. This credit is for certain individuals who get less than the full amount of the child tax credit.
• American Opportunity Tax Credit. To claim the AOTC, the taxpayer, their spouse or their dependent must have been a student who was enrolled at least half time for one academic period. The credit is available for four years of post-secondary education. It can be worth up to $2,500 per eligible student. Even if the taxpayer doesn’t owe any taxes, they may still qualify. They are required to have Form 1098-T, Tuition Statement, to be eligible for an education benefit. Students receive this form from the school they attended. There are exceptions for some students. Taxpayers should complete Form 8863, Education Credits, and file it with their tax return.

By law, the IRS is required to hold EITC and Additional Child Tax Credit refunds until mid-February — even the portion not associated with the EITC or ACTC.  The IRS expects the earliest of these refunds to be available in taxpayer bank accounts or debit cards starting February 27, 2018, if these taxpayers choose direct deposit and there are no other issues with their tax return.

Instructions for Forms 1040, 1040A or 1040EZ list income tax filing requirements. Taxpayers can also use the Interactive Tax Assistant tool on IRS.gov to answer many tax questions. They should look for “Do I need to file a return?” under general topics.

This tax tip covers information for tax year 2017 and is not affected by the Tax Cuts and Jobs Act of 2017. Most of the changes in this legislation take effect in 2018 and will affect the tax returns filed in 2019.

More Information:

• Publication 596, Earned Income Credit
• Schedule 8812 (Form 1040A or 1040), Child Tax Credit
• Publication 972, Child Tax Credit
• Publication 970, Tax Benefits for Education
• Education Credits

Bookkeeper: The NEW Definition

Bookkeeper: A management accounting professional, often specializing in financial compliance, business strategy, technology setup, execution, and maintenance.

If you look up the definition of a Bookkeeper in Webster's Dictionary, or online, most of the time, the definition of a Bookkeeper is extremely outdated, and no longer applies to the bookkeeping profession. The above definition of a Bookkeeper is more up-to-date, and a much more accurate description of what a Bookkeeper does today.

Tax Issues for Alaska Native American Corporations and Alaska Native Settlement Trusts

The Internal Revenue Service today reminds Alaska Native Corporations and Alaska Native Settlement Trusts that they may be able to take advantage of certain benefits in the recently enacted tax reform legislation. The new law also requires that certain contributions made by Native Corporations to Settlement Trusts in 2017 be reported to the Settlement Trusts by January 31, 2018.

Assignment of Payments to a Settlement Trust

The new law allows a Native Corporation to assign certain payments to a Settlement Trust without treating the payments as income for federal tax purposes.

The assignments must be in writing and the Native Corporations must not have received the payments prior to the assignment to the trust. The Settlement Trust must include the payments in its gross income in the taxable year received, for taxable years beginning in 2017.

If a Native Corporation assigns payments to a Settlement Trust, they are not allowed to deduct those same payments.

Deduction for Contributions by a Native Corporation to a Settlement Trust

Native Corporations may also choose to deduct contributions made to a Settlement Trust. The deduction is limited to the amount of the Native Corporation’s taxable income for that year. Any unused deduction may be carried forward 15 additional years.

A Native Corporation makes the election to deduct contributions to a Settlement Trust for a specific taxable year by including a statement with its original or amended income tax return. The election is effective only for the taxable year for which the return is filed. Additionally, the election may be revoked on a timely filed amendment or supplement to that income tax return.

A Native Corporation may make this election for any taxable year for which the statute of limitations period has not expired. If the refund statute of limitations period expires before December 22, 2018, the Native Corporation has until December 21, 2018 to make a claim for credit or refund.

Reporting Requirements for Electing Native Corporations

Native Corporations that choose to deduct contributions made to a Settlement Trust are under a new reporting requirement. They must furnish a statement to the Settlement Trust providing information about the contributed property by January 31 of the year after the contribution was made.

The statement must include:

• the total amount of contributions to which the election applies,
• for each contribution, whether the contribution was in cash,
• for each contribution of other than cash, the date the contributed property was acquired by the Native Corporation, the adjusted tax basis and fair market value of the property at the time of its contribution; and
• the date of each contribution.

Deferral of Income Recognition by Settlement Trusts

Generally, the Settlement Trust must include income equal to the deduction by the Native Corporation. However, under the new law, Settlement Trusts may choose to defer recognizing contributions of property other than cash as income until the Settlement Trust sells or disposes of the property. The new law allows a Settlement Trust to amend the terms of its agreement to allow this choice up to December 21, 2018, with certain restrictions.

To defer recognition of income related to any property contributed to it by a Native Corporation, the Settlement Trust must identify and describe the property on a statement attached to its original or amended income tax return for the year in which the contribution was made. A Settlement Trust may make this election for any taxable year for which the statute of limitations period has not expired.  If the refund statute of limitations period expires before December 22, 2018, the Settlement Trust has until December 21, 2018 to make a claim for credit or refund.

IRS Encourages Native Americans to Check Eligibility for Earned Income Tax Credit

The IRS urges Native American taxpayers to check if they qualify for the earned income tax credit since many workers in Tribal communities often overlook this credit.

EITC benefits Native Americans who meet basic rules. Taxpayers must have income from a job, be self-employed, or run their own business. This includes home-based businesses and work in the service industry, construction and farming.

Income Limits and Maximum Credit Amounts

For tax year 2017, the income limits for all taxpayers’ earned income and adjusted gross income must each be less than:

Filing Status	Qualifying Children Claimed
	Zero	One	Two	Three or More
Single	$15,010	$39,617	$45,007	$48,340
Head of Household	$15,010	$39,617	$45,007	$48,340
Qualifying Widow(er) with Dependent Child	$15,010	$39,617	$45,007	$48,340
Married Filing Jointly	$20,600	$45,207	$50,957	$53,930

The maximum credit for Tax Year 2017 is:

• $6,318 with three or more qualifying children
• $5,616 with two qualifying children
• $3,400 with one qualifying child
• $510 with no qualifying children

By law, the IRS cannot issue refunds before mid-February for tax returns that claim the EITC or the additional child tax credit. The law requires the IRS to hold the entire refund — even the portion not associated with the EITC or ACTC. The IRS expects the earliest EITC/ACTC related refunds to be available in taxpayer bank accounts or on debit cards starting Feb. 27, 2018, if these taxpayers choose direct deposit and there are no other issues with their tax return.

More Information:

• Filing for Individuals
• EITC Assistant