How Per Diem Payments Can Simplify Your Accounting and Taxes

Take advantage of these tax-saving moves for your small business.

Free Book Preview
Money-Smart Solopreneur

This book gives you the essential guide for easy-to-follow tips and strategies to create more financial success.

April
5, 2021

4 min read

Opinions expressed by Entrepreneur contributors are their own.


Due to the current pandemic, has decreased dramatically. No more large conferences, trade shows, or company retreats. But although travel has declined, it hasn’t stopped, and some industries like transportation and shipping have even seen a surge in demand from the massive uptick in online shopping.

Zoe recently returned from a , and in an effort to be as contactless as possible, vendors were supposed to email receipts. The emails never arrived and Zoe had trouble filling out her expense reports. When discussing her complication with a colleague from another company, he was surprised she used an expense report; he gets paid a per diem amount and isn’t required to turn in receipts.

Not only a record-keeping nightmare, business travel expense reports also don’t incentivize employees to be frugal with company . As well, expense reporting can distract employees from their job by instead having to focus on documenting each expense. And, if employees don’t provide expense reports, they are responsible to pay tax on the money.

There’s an alternative system that can benefit everyone involved when implemented correctly. When employees are traveling, businesses have the option to pay them a per diem, or daily rate. This approach eliminates the need for both expense reports and supervision of travel spending. Here are some tips and strategies to help implement per diem travel in your business:

Related: Tax Deductions 2018: 42 Tax Write-Offs You May Not Know About

Max per diem rate

The GSA sets the federal per diem rates. These are the maximum rates that the will let your business deduct. If your regular business travel is above this line, per diem won’t benefit your business. A business isn’t required to pay this rate; if your travel is less extravagant then your business can set lower per diem rates.

Tax-free payments

When a business pays an employee a flat rate for travel, the entire amount is tax deductible for the business and not taxable to the employee, assuming you don’t exceed the GSA rates. This is a great, tax-free way to compensate employees while providing them extra tax-free compensation if they are economical with travel expenses.

Tax-free wages

For employees that travel often or for extended periods of time, this is a great way to get tax-free income. Specifically, travel nurses and truck drivers can earn a significant amount in tax-free wages if they get paid per diem along with their regular wages.

No expense reports

Unlike reimbursing for travel expenses, paying per diem rates don’t require any expense reports. This simplifies the accounting process for everyone. The business pays a flat rate per day and the employee receives a fixed amount which they choose how to spend. No tedious paperwork to fill out and account for.

Related: An Entrepreneur’s Guide to Whittling Down Travel Costs

After the recent trip, Zoe approached her accounting manager about getting a flat per diem rate instead. Of course, this had been discussed before but never implemented. Zoe was able to come to an agreement to get a flat rate. She’s quite pleased as she usually spends less than her budget, and this way she can earn some extra tax-free money while on business trips.

The current slump in travel is a great time to reevaluate your business travel policies and decide how to implement per diem into your travel reimbursement/compensation strategy. There are many factors to consider, among them is employees’ reaction to changes in policy. Per diem is one more tool that businesses have to optimize their accounting system and maximize profits.

Related: Employee Compensation Structure Ensures Business Growth, Says This CEO

No Comments Yet

Leave a Reply

Your email address will not be published.

 

The Abundance Pub (TAP) is a media source dedicated to all things positive in the world. Focusing on Health, Wealth and Happiness. The Abundance Pub serves as repository of positive news articles, blogs, Podcasts, Masterclasses and tips to help people live their best life!

FOLLOW US ON

Message From Founder

The Abundance Pub Newsletter

Sign Up to Get a Dose of Positivity Every Week!

You have successfully subscribed to the newsletter

There was an error while trying to send your request. Please try again.

The Abundance Pub will use the information you provide on this form to be in touch with you and to provide updates and marketing.