Hello everyone, I am an independent contractor (sole proprieter) nearing the end of my first year of business. I am a Petroleum Landman and receive a daily rate plus per diem. We, the contractors, submit invoices that breakdown our daily rate, $35 food per diem, $70 lodging per diem, and $10 communication per diem. I have heard from many people, both sides on the issue of per diem being taxable income. Please help me set the record, possibly with references, on this issue. Are the individual per diems taxed if there is no receipt to prove the expense even if it is at or under the federal limits? THANK YOU ALL IN ADVANCE!

It depends.

Per diem received at the same location for over a year is ALWAYS taxable income.

Per diem received at different locations with no single location exceeding a year in length is usually NOT taxable.

In either case, independent contractors can normally deduct the daily living expenses on Schedule C and count the per diem as part oftheir taxable compensation. If expenses exceed the per diem, they pay less tax.