I'm single owner of my own LLC. I get paid weekly by submitting an invoice. I put a laor amount per week along with a separate line for perdiem because I work out of state. Is perdiem tax free in my case? Can I use the max allowed from publication form 1542? The consulting firm says I can but I want to make sure at the end of the year the 1099 will only report labor wages only so I don't have to pay taxes on perdiem. If I do have to pay taxes on perdiem, how come?

If it is not reported on 1099-misc, you do not report it. If it is added with your labor amount, you will claim your expenses on schedule C or C-EZ (Form 1040). Your U.S. Tax Return: Tax Filing by Self Employed Sole Proprietor or Independent Contractor

The per diem is NOT taxable as long as your work at a specific worksite does NOT exceed one year in length.

Once you hit the one-year mark, the per diem becomes taxable compensation.

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Originally Posted by AtlantaTaxExpert

The per diem is NOT taxable as long as your work at a specific worksite does NOT exceed one year in length.

Once you hit the one-year mark, the per diem becomes taxable compensation.

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Response...

Ok thanks... So, after the 1 year mark hits, how can they pay me perdiem on a 1099 and have it be tax free because I would still be working out of state? I know people on W2 that get perdiem for years for cost of living out of state. Would it help in the 2nd year if I go W2 vs 1099?

The one-year rule applies whether you are a W-2 employee or a 1099 contractor, so switching back-and-forth will do you no good.

Again, the one-year rule applies ONLY IF you are going to the same worksite. If you go to a different worksite before the 12-month period ends, the clock re-starts.

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Originally Posted by AtlantaTaxExpert

The one-year rule applies whether you are a W-2 employee or a 1099 contractor, so switching back-and-forth will do you no good.

Again, the one-year rule applies ONLY IF you are going to the same worksite. If you go to a different worksite before the 12-month period ends, the clock re-starts.

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Good deal. Long story short, my contract ended on 1/24/2012 and that was the end of the first year. Didn't think they will renew it. I'm unemployed right now and they are still deciding if I will be brought back again or not. If I am, does the clock start over since it's not continuous? Also, if I'm brought back it will be at another site in Virginia but for the same customer. Let me know if that helps or not...

New contract, same worksite: Per diem IS taxable. This dodge has been tried multiple times and the IRS will NOT buy it.

New contract, different worksite: The clock re-starts on the one-year rule.

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Originally Posted by AtlantaTaxExpert

New contract, same worksite: Per diem IS taxable. This dodge has been tried multiple times and the IRS will NOT buy it.

New contract, different worksite: The clock re-starts on the one-year rule.

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Good deal thanks! I'll keep that in mind. Because in state of VA where I'm at, the max perdiem rate averages out to 268.00 per day for 12 months. Can I get that tax free for 2012? So, if I make 105k, I only pay taxes on like 8k for the year? :)

You need to use Table #3 in IRS Pub 1542, and then ONLY the M&IE column, since your "employer" pays for your hotel.

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Originally Posted by AtlantaTaxExpert

You need to use Table #3 in IRS Pub 1542, and then ONLY the M&IE column, since your "employer" pays for your hotel.

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They don't pay for my hotel. I rent a small apartment out here and I'm all out of pocket in VA since my home town with my house is in Missouri. So, with that being said, does that qualify me to get the 268.00 per day from the consulting firm that pays me. I send them an invoice each week and my my own quarterly taxes to IRS and state of VA. Its like 254.00 per day from 1-1 - 2-29 this year then changes but all of the changes the perdiem changes this year averages out to 268.00 per day if I stay out here a year.

Thoughts...

No. The high per diem amount is entered in IRS Pub 1542 to give businesses an idea of what the lodging costs are for specific areas. That does NOT allow you to claim that lodging per diem. You must claim your actual costs, and the "employer" must reimburse you for your actual costs. Any excess is considred taxable compensation.

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Originally Posted by AtlantaTaxExpert

No. The high per diem amount is entered in IRS Pub 1542 to give businesses an idea of what the lodging costs are for specific areas. That does NOT allow you to claim that lodging per diem. You must claim your actual costs, and the "employer" must reimburse you for your actual costs. Any excess is considred taxable compensation.

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Ah OK gotcha! Even if we agreed on lets say 200.00 per day, if my expenses are like 80 per day I would have to pay back or pay taxes on the extra? Because anytime I took a trip for a week I'd get the max and anything I didn't use was mine to keep tax free.

That WOULD be nice, but it does NOT work that way. Sorry!

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Originally Posted by AtlantaTaxExpert

That WOULD be nice, but it does NOT work that way. Sorry!

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Ok thanks... But, for M&E I can always use the 71.00 per day all year correct? Other than that, all my questions...

Yes, $71 per day for M&IE is fine.

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Originally Posted by AtlantaTaxExpert

Yes, $71 per day for M&IE is fine.

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Thanks good to know. Ok, well thanks for your help it's been great talking with an expert like yourself!

Have a great day.


Scott

Scott:

Glad to help!