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 Clients and individuals ask many good questions of The Accountants, LLC. We collected a few of the most recent queries and answered them for web surfers here. Please be aware this is general information only. It may or may not be appropriate to you. Before applying anything you read to your personal or business situation, you should contact us at (212) 555-4321 or email us from the link at left. Q: I work as an independent contractor. Can I use the federal lodging per diem rate to substantiate income-tax deductions for my lodging expenses on overnight trips? A: No. The IRS doesn't allow independent contractors and employees who are not reimbursed by their employers for travel expenses to use the federal per diem rate in lieu of actual costs. You may claim a deduction for lodging only if you have documentary evidence of your expenses. You must have a record of the time, place, amount, and purpose of the business, as well as paid bills or receipts. You may, however, use the federal meal and incidental expenses (M&IE) rate to help substantiate meal expense deductions for costs incurred while you're away overnight on business. Q: I am 48 and currently withdrawing money from my IRA over my lifetime in substantially equal periodic payments. My IRA investments have done very well since I began taking distributions. Will increasing the amount of my payouts trigger the 10% penalty on early withdrawals? A: It could. In a recent private letter ruling, the IRS reviewed a situation similar to yours and said that the IRA owner had to pay a 10% penalty plus interest on the withdrawals he had already taken under the original calculation method. As you know, there is an exception to the 10% penalty that usually applies to IRA withdrawals taken before age 5912 if you receive substantially equal periodic payments over your life expectancy. However, the exception doesn't apply if the payments are subsequently modified before the later of (1) the close of the five-year period beginning with the date of the first payment and (2) the date the IRA owner attains age 5912. Since you are not yet 5912, you fall under this rule, and you'll have to pay a penalty unless you meet another exception. However, assuming all tax law requirements are met, you may not have to pay a 10% penalty on the larger withdrawals you take after modifying the payment schedule. |
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