Effectively managing business travel expenses is not just about maximizing tax deductions—it’s also key to staying compliant with IRS regulations. Whether you’re covering the cost of employee trips or your own travel for business, knowing the updated per diem rates and how to use them can make the process easier and more accurate.
The IRS recently announced new per diem rates for 2024-2025, which took effect on October 1, 2024. Now is the perfect time to review and update your internal processes for tracking travel expenses.
What Counts as a Business Travel Expense?
Business travel expenses typically include:
- Transportation: Costs for flights, car rentals, mileage, or public transportation while away from home for business purposes.
- Lodging: Hotel stays or other accommodations.
- Meals: A portion (usually 50%) of the cost of meals consumed while traveling.
- Incidental expenses: Minor expenses such as tips, laundry, or internet fees.
It’s essential to properly document these expenses. The IRS requires detailed records, including receipts, dates, locations, and the business purpose of the trip, to claim these deductions.
What Are Per Diem Rates?
Per diem rates are daily allowances set by the IRS to simplify expense tracking for businesses. Instead of keeping receipts for every single cost, you can reimburse employees or yourself using these standardized rates. The per diem rates cover two primary categories: lodging and meals & incidental expenses (M&IE).
Using per diem rates instead of tracking every expense can save time and reduce paperwork, but it’s crucial to follow the IRS guidelines and use the rates appropriately.
IRS Per Diem Rates for 2024-2025: Key Changes
The IRS updates its per diem rates annually, and the new rates for 2024-2025 come with a few important changes. Here’s what you need to know:
- Transportation Industry Rates: For individuals in the transportation industry, the special meal and incidental expenses (M&IE) rates are $80 per day for travel within the continental U.S. (CONUS) and $86 for travel outside the continental U.S. (OCONUS).
- Incidental Expenses-Only Rate: This rate is $5 per day, regardless of the location, to cover incidental expenses such as tips, minor transportation, and other small travel-related costs.
- High-Low Substantiation Method: This method offers a simplified approach for calculating per diem for business travel.
- High-Cost Localities: The per diem rate is $319 per day, with $86 allocated for meals.
- Other Localities: The per diem rate is $225 per day, with $74 allocated for meals.
The IRS has also revised its list of high-cost localities for the coming year. Some new high-cost areas include Los Angeles, CA, and Boise, ID, while others like Missoula, MT, have been removed from the list. Keeping track of these updates is essential to ensure compliance and maximize your deductions, and you can view the full list here.
If you have any questions about per diem rates or how they affect your business, reach out to us so we can help you determine the best way to track these expenses and make sure your tax filings are smooth and compliant.