 Deducting expenses as a contractor
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 Dear
Tax Talk,
As an independent contractor, I have occasion to take clients to lunch or dinner. While on the road traveling overnight, I use the per diem M&IE (meals and incidental expenses) allowance for the city I am staying in. If I take a client to dinner or lunch and that receipt includes my dinner or lunch, how do I adjust the M&IE allowance for my expense? Example: M&IE = $40. I incur a bill for my client and me for dinner for $60. How do I adjust the $40 M&IE allowance to accommodate my portion of the dinner tab? I should not have to forgo my lunch and breakfast allowance, right?
-- Dan
 Dear
Dan,
A self-employed person can either choose to use the actual expenses
incurred for travel, including meals and incidental expenses, or
use the standard per-diem rate for M&IE. When you use the standard
M&IE rate, it is in lieu of actual expenses. If you use actual
expenses on any day of travel, you cannot use the standard rate.
Since you will use the actual expenses on a day that you entertain
a client, you cannot use the standard rate. This means that you
would have to use your actual expenses for breakfast and lunch,
too. Alternatively, you could forgo your portion of the dinner expense
and use only the actual expense for the client that day plus the
standard rate for you. As long as you are consistent in deducting
one or the other, your treatment will be respected by the IRS.
The federal per-diem rate by locality for the continental United
States can be found at the GSA
Web site. The standard rate only applies to meals and incidentals.
Actual costs must be used for lodging.
Incidental expenses include tips and local transportation but do
not include laundry, cleaning and pressing of clothing, lodging
taxes or the costs of faxes or telephone calls.
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