How To Deduct Expenses Without Keeping Receipts

The mantra of tax record keeping has remained relentlessly burdensome for decades: “No Receipt, No Deduction”.

But fear not, you who loathe the never-ending climb up the mountain of paperwork required by the U.S. tax code. Many of our most beloved tax rules have exceptions, and such is the case with this one.

Believe it or not, there are actually expenses you can legally deduct without a receipt. Here’s one for self-employed folks who travel out-of-town on business.

When it comes to deducting your meals while on an overnight business trip, you have two options with regard to receipts and record keeping:

OPTION #1:

You keep your receipt from each meal and simply deduct the cost of the meal times 50%, a la the “No Receipt, No Deduction” rule.

OPTION #2:

You use The Per Diem Method to determine your meal deduction. For each day of the trip, you are allowed a daily meal allowance, depending on what part of the country you were visiting.

For example, the per diem meal rate for Birmingham, AL is $56. For San Francisco, it’s $71. Like Option #1, your actual deduction is 50% of the per diem amount — $28 in  Birmingham and $35 in San Fran.

To find the per diem allowances, go to IRS Publication 1542 – Per Diem Rates (For Travel Within the Continental United States).  You can access it here: http://www.irs.gov/pub/irs-pdf/p1542.pdf.  If a particular area is not listed, then the allowance is $46 per day.

Take note: There are two very nice benefits to The Per Diem Method.

Benefit #1: You don’t have to keep receipts for your meals. Yep, you can pitch ‘em. Scouts honor.

Benefit #2: It doesn’t matter how much you actually spend on meals, you still get to deduct 50% of the per diem amount. This can result in hundreds of dollars in tax savings for you.

Example: You regularly go to several cities for overnight business trips, traveling about five days each month. These cities all have a per diem rate of $51.

You are frugal. To save both time and money, you prefer to eat at fast food restaurants three times a day. On average, you spend only $20/day on meals.

But the per diem rate is $51/day. If you used Option #1, your actual deduction would be $20 x 50%, or $10/day. With Option #2, you get to deduct $51 x 50%, or $25/day.

The difference between Option #1 and #2 is $15/day. Over the course of the year, this adds up to an extra $900 in deductible meal expenses ($15/day x 60 days) — even though you didn’t actually spend the $900.

End result: you save $315 in taxes (assuming your combined federal and state income tax rate is 35%). And you can throw away 60 days worth of meal receipts.

So you get $315 in tax savings without spending a dime.

One final note: The per diem method is only available to Sole Proprietors and Partners. If your business is a Corporation and you own more then 10% of the company stock, you can’t use the per diem method for yourself. Sorry!

This entry was posted in business tax deductions, tax record keeping. Bookmark the permalink.

6 Responses to How To Deduct Expenses Without Keeping Receipts

  1. Pingback: More Good News About the Per Diem Method | Self Employed Tax Deductions Today

  2. Brad Pollina says:

    Hi Wayne!

    Long-time reader and customer. Love your work.

    My question is this: Most of my deductions are done electronically via paypal which deducts either out of my checking account or debit card. What I’ve always done is when preparing my taxes I export all the data to a csv file and add it all up. Is digital format enough or do I need to print out each paypal receipt for everything I buy? Do I also need to show the paper trail that it came out of my bank account?

    • Wayne Davies says:

      I guess it depends on what you mean by “enough” — enough for what purpose? For purposes of preparing your tax return, digital records can be enough to provide the numbers for the return. For purposes of an audit, hmmm, digital records are probably not enough, because the IRS would want to see a paper copy of your financial records. So my recommendation is to print out your receipts and keep them in your files for 3 years.

  3. Rodney Rodriguez says:

    The clearest explanation on the web. I wish the IRS explained matters like you!

  4. S J says:

    I WAS READING YOUR COMMENTS ON PER DIEM METHOD FOR CLAIM MEALS AS BUSINESS EXPENSE AND FOLLOW THAT. DOES THIS APPLY FOR THE OVERNIGHTS AWAY FROM HOME AS WELL. I SPENT 232 NIGHTS AWAY FROM MY HOME TOWN ( 150 MILES ONE WAY ) – CAN I FORGO RECEIPTS AND CLAIM LODGING PER DIEM? THANK YOU.

    • Wayne Davies says:

      I’m sorry to tell you that for self-employed people, the per diem method only applies to meals but not lodging. That’s taxes for ya! For lodging, you can deduct the actual expense of the hotel.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>