method - Linkenheimer LLP CPAs & Advisors

IRS Announces Per Diem Rates For Business Travel

In Notice 2020-71, the IRS recently announced per diem rates that can be used to substantiate the amount of business expenses incurred for travel away from home on or after October 1, 2020. Employers using these rates to set per diem allowances can treat the amount of certain categories of travel expenses as substantiated without requiring that employees prove the actual amount spent. (Employees must still substantiate the time, place and business purposes of their travel expenses.)

The amount deemed substantiated will be the lesser of the allowance actually paid or the applicable per diem rate for the same set of expenses. This notice, which replaces Notice 2019-55, announces:

Rates for use under the optional high-low substantiation method,
Special rates for transportation industry employers, and
The rate for taxpayers taking a deduction only for incidental expenses.

Updated general guidance issued in 2019 regarding the use of per diems under the Tax Cuts and Jobs Act (TCJA) remains in effect.

High-low method

For travel within the continental United States, the optional high-low method designates one per diem rate for high-cost locations and another for other locations. Employers can use the high-low method for substantiating lodging, meals and […]

Choosing the Right Accounting Method for Tax Purposes

The Tax Cuts and Jobs Act (TCJA) liberalized the eligibility rules for using the cash method of accounting, making this method — which is simpler than the accrual method — available to more businesses. Now the IRS has provided procedures a small business taxpayer can use to obtain automatic consent to change its method of accounting under the TCJA. If you have the option to use either accounting method, it pays to consider whether switching methods would be beneficial.

Cash vs. accrual

Generally, cash-basis businesses recognize income when it’s received and deduct expenses when they’re paid. Accrual-basis businesses, on the other hand, recognize income when it’s earned and deduct expenses when they’re incurred, without regard to the timing of cash receipts or payments.

In most cases, a business is permitted to use the cash method of accounting for tax purposes unless it’s:

Expressly prohibited from using the cash method, or
Expressly required to use the accrual method.

Cash method advantages

The cash method offers several advantages, including:

Simplicity. It’s easier and cheaper to implement and maintain.

Tax-planning flexibility. It offers greater flexibility to control the timing of income and deductible expenses. For example, it allows you to defer income to next year by […]