What do you need to know as you decide on a per diem rate for employees or negotiate a per diem rate with consultants and contractors? It can sometimes seem like a random number pulled from the air, but there a number of per diem rate considerations that you should be aware of.

Federal Rates
As we’ve mentioned here before, the federal per diem rates can play a significant role at tax time. On the plus side, they provide valuable guidelines. That said, it may be easier to work with only one rate, or maybe you don’t feel the federal per diem is adequate. But beware - any amount above the federal standard rate is considered additional compensation, and with that comes all the tax implications of wages.

Receipts
No matter what you decide on per diems, make sure that the actual spending and recuperated funds are accounted for. This is for your own records as well as for the IRS. Without them your system will not be considered an accountable plan, and you and your employee may be getting a tax bill.

Electronic Payments
The big advantage of having a per diem rate instead of reimbursable expenses is that you pay a flat fee and don’t have to worry about all the incidentals. Take it a step further and manage your per diems electronically to improve allocation and recuperation documentation.

Labels: Accounting, Expense Fraud, expense management, IRS, Per Diems, Travel Expenses

Every contractor you pay more than $600 to over the course of the year requires a 1099 form, if that contractor is an individual person and not a corporation. 1099-misc forms are also needed for royalty payments of at least $10 and consumer goods sales of over $5,000 to any particular person, not business, for the intent of resale. So what are some top line things you should keep in mind about a 1099 form?

1099 forms are for contractors. While this status can be beneficial due to fewer company paid taxes, it should only be used when it truly applies to avoid IRS penalties (http://www.cfo.com/article.cfm/9140439?f=search). Create a company policy that will let your managers know just when to fill out a 1099 versus a W2. Here are some of the qualifications the IRS uses to determine worker status (http://www.topechelon.com/recruiters/contracting/definiti.htm).

If you uncover a case of fraud in the company, file a 1099. Criminal proceedings may not get your money back, but letting the IRS know about your employee’s undocumented earnings can get you a tax write-off and potentially a finder’s fee (http://www.cfo.com/blogs/index.cfm/detail/4100859?f=search).

Hiring a contractor and filing a 1099 is a great way to get temporary help without the hassle of hiring a permanent employee. It can also be a valuable way to fight back against company fraud. Just be sure the 1099 forms are carefully filed in order to keep your company in the IRS’s good graces.

Labels: Accounting, Finance Tips, IRS

Internal audits are a key part of keeping a business healthy by managing risks and rewards. They involve analyzing business practices and offering solutions for smoother processes. While this can be a vital part of running a profitable business, it can also be a burden to prepare for internal auditors. What can the accounts payable (AP) team do to prepare?

First, get an idea of the desired outcome of the audit (i.e. better business practices, like an online travel service implementation, or shorter purchase to pay cycles). Determine what will be required from your AP or accounting department and how much time will be needed for audit preparation. Most audits take 8 to 12 weeks (http://en.wikipedia.org/wiki/Internal_audit). Once you have a general idea of the time frame and project, set out a plan to go through the following steps:

Have all necessary documents on hand. If your company uses a Quality Management System (QMS), include information stored there as well. Not all audits are the same, so ask your auditor for guidance on which documents would be helpful. Also, having general records available and organized will help immensely. The more time you spend organizing the data beforehand, the less time you have to spend explaining and searching when the auditors arrive.

Consider potential questions. Take a look at the cash flow process so that you can answer any relevant questions. Note anywhere you have performed a self analysis or evaluation. Much of this may be in the QMS. Once you review your own process steps and requirements, you will be better able to answer questions quickly and correctly.

Finally, prepare to be unavailable for work during some of the auditing process, since time will need to be spent with the auditor. To minimize distractions, treat this time as though you were out of the office. This will make the audit process more efficient and will take less of your time than repeated interruptions.

Labels: Accounting, Cash Flow, Finance Tips, IRS

Does your per diem rate fall under the local GSA rate for New York City? How about Oklahoma City? Do you have all the receipts you need for every employee’s business travel over the past year? Does your documentation meet all the substantiating requirements for tax purposes? For a company too busy doing business to keep up with all the IRS fine print, there is an easier way.

Use the high-low method so that you only have to set two per diems. Then use a corporate card, enabling you to access a detailed list of transactions. This way, you can automatically have a record of expenditures to substantiate meals and incidental expenses (M & IE) if you ever have an audit. There’s no more chasing down receipts or figuring out what is considered a "timely manner" for substantiation. Since all transactions are listed on the card statement, all you’ll ever have to do is produce those statements when the government comes knocking.

You need an accountable plan for monitoring business expenses and this is a great way to meet the IRS substantiating requirements for per diems.

Labels: IRS, Per Diems

The government sets maximum regional per diem rates that can be allotted to employees without companies having to treat the per diem as extra wages. Since wages are subject to income tax and employment tax, it is worthwhile to stay under this limit.

Be sure to keep an eye on the per diem amounts for your employees’ destinations throughout the year. It is sometimes not enough to check at the beginning of each year since January is not the only time the rates are adjusted. The General Service Administration (GSA) sets these rates and they have changed the per diem allotments for areas in Alabama, California, Illinois, Missouri, New York, and Texas as recently as this past March.

Given this information, how do you know what your per diem rate should be? Visit the GSA website to see the full list. The tax code differs by state and city, so it’s worth finding out exactly what applies to your company’s travel needs. Having the information now instead of waiting until tax time can make all the difference.

Labels: IRS, Per Diems

Business travel can become a headache for the accountant; tracking down receipts, collecting expense reports, and cutting reimbursement checks. When frequent travel is a necessary part of doing business, an easier way to manage travel expenses is to establish a per diem rate. The only problem with going the per diem route is keeping abreast of the tax implications. However, by keeping up to date on IRS rulings regarding per diems, it's possible to enjoy the benefits of having a per diem rate without tax drawbacks.

One of the biggest IRS rulings on per diems in the last couple years relates to companies with per diem rates above the General Service Administration's (GSA) set rates. If you are over the limit, carefully document how that money is spent. If all funds are accounted for, then the amount up to the federal limit can be considered travel expenses and the amount over the limit must be considered extra wages. On the other hand, if part of that money is unaccounted for, i.e. the per diem is more than the total cost of documented travel expenses, the extra either needs to be returned by the employee or else the entire amount of the per diem, not just the amount over the maximum, will considered fully taxable wages.

For more information on new rulings as they come out, visit the IRS per diem website and look under "What's New." Or, just keep reading this blog. We’ll be sure to keep you informed about the latest per diem news and how it affects your company.

Once the complex tax code is deciphered, having a per diem rate can be an efficient and easy way to compensate employees and contractors for travel expenses.

Labels: IRS, Per Diems