2011 Virginia Legislators' Tax Guide: Living Expenses

Legislators receive a per diem allowance equal to the allowable 2010 federal per diem for lodging, meals and incidental expenses applicable to Richmond for each day the General Assembly is in session. The receipt of this amount is not affected by whether the delegate maintains temporary living quarters in Richmond. The per diem is not included in your W-2.

The per diem reimbursement is an "accountable plan" for those delegates who are considered away from home on business because you are required to substantiate all of your expenses. What constitutes being "away from home on business" has been and still is a difficult issue. (See discussion of "tax home" in the section for ordinary business expenses.)

If your actual expenses exceed this per diem allowance, you can claim the excess by reporting the total actual expenses and the total reimbursement on Form 2106. However you must maintain adequate records of the details of your expenses. In addition, the expenses in excess of reimbursements are subject to a limitation and are only deductible to the extent the total exceeds 2 percent of adjusted gross income.

Because many of the substantiation rules require evidence of your business schedule, it is wise to maintain a calendar or diary of your schedule and events related to legislative duties as part of your tax records.

The IRS updates the per diem amounts at least annually.

What expenses can I deduct for living in a hotel or apartment while attending sessions in Richmond? | Top

For hotels, motels and similar commercial places for residing while in Richmond and away from your normal residence (your "tax home"), you are allowed to deduct the actual amount paid for the room (including any taxes or service charges). If a hotel or motel room is shared with other legislators, each may claim the share of the expense he or she paid.

If you have a fixed monthly rate that you are paying the motel or hotel, that amount would be allowed as a deduction as long as it is paid by you and as long as it is for the purpose of providing a place to stay while you are away from home on business. If you live in an apartment or share an apartment with another person, you are allowed to claim the actual amount that you pay for your share of the rent, utilities, telephone bills and any furniture you may be required to rent to furnish the apartment.

In each case, whether you stay in a hotel, motel or apartment, you should keep the receipts so these can be provided to the IRS upon request. It would be desirable for each member of a group living in a hotel or apartment to have copies of the paid vouchers and an annual summary of the total costs of the apartment or hotel that shows the manner in which costs were divided among the various persons.

 

Where do I report the per diem paid to me? | Top

If your business expenses exceed the amount reimbursed by the state, use Form 2106 to report all business expenses, both reimbursed and unreimbursed. Then include all reimbursements including the per diem received on Form 2106, Part I, line 7.

While in Richmond, may I deduct the cost of meals? | Top

Yes, but the deduction is limited to 50 percent of the cost of the meal. Actual out-of-pocket expense that you incur and pay may be deducted if you are away from home overnight. The requirement again necessitates keeping a record to show the amount that you personally paid for breakfast, lunch, dinner and/or any other meal expense you incur while you are in Richmond.

If a registered lobbyist or friend pays for your meal, this is not a deduction to you since you have not paid for the meal. Similarly, when you are attending dinners in Richmond held by various associations, the Chamber of Commerce, etc., you are not allowed the deduction for this meal.

If you are living in quarters that provide cooking facilities, the cost of groceries and necessary beverages is an allowable, deductible expense, subject to the 50 percent limitation. Receipts are required to be kept for certain expenses. It is suggested that you keep as many receipts as possible, as well as all cancelled checks, to support your business expenses.

Again, these expenses are only deductible to the extent the expense is not reimbursed.

 

May I deduct a standard per diem amount for meals instead of substantiating actual cost? | Top

A standard per diem for meals and incidental expenses is included in the per diem you receive from the state. If you choose to consider this per diem as the reimbursement for all business meal costs that you incur, you report neither the expense nor the reimbursement.

When I am in Richmond, can I deduct a per diem allowance that would include both meals and lodging in lieu of keeping track of actual expenses? | Top

A state legislator would normally not be able to deduct expenses for travel away from home during the legislative session because the state capital would be considered his or her principal place of business. However, for purposes of determining whether a travel expense is incurred away from home, a state legislator may elect to have his or her residence in his or her legislative home district treated as his or her tax home. If the election is made, a state legislator is deemed to be away from home in the pursuit of a trade or business on any day that the legislature is in session (including periods of up to four consecutive days when the legislature is not in session) or on any day when the legislature is not in session but the legislator's presence is formally recorded at a committee meeting. The legislator's place of residence within the represented legislative district is deemed to be the legislator's tax home. Legislators whose place of residence is 50 miles or less from the state capital may not elect to have these rules apply. There is no requirement that the taxpayer be a legislator for the entire tax year.

For each day that a state legislator is deemed to be away from home, the amount deemed expended on living expenses is determined under one of two standards, and whichever results in the larger deduction is applied. Under one standard, the amount deemed expended per day will equal the generally allowable per diem allowance available to employees of the executive branch of the federal government for such day while away from home but within the U.S. The second standard provides that the amount deemed expended will equal the amount generally allowable to employees of the state in which the legislator sits as a per diem allowance by the state while employees are away from home, to the extent that the amount does not exceed 110% of the amount computed under the first standard.

The unreimbursed expenses of a state legislator are deductible as a miscellaneous itemized deduction, subject to the 2 percent floor. Additionally, the 50 percent limitation on the deduction of meal expenses must be taken into account before the 2 percent floor is applied. Because the expense amount a legislator is allowed to deduct under IRS § 162(h) is determined by reference to a per diem allowance, an allocation must be made between meals and lodging so that the 50 percent limitation on the deduction of meal expenses can be applied. The allocation is made on the basis of the ratio of the amounts allowed for meals and lodging that are found in the Federal per diem amount applicable to the legislator's state capital at the end of the legislator's tax year. If the legislator is reimbursed by the state in an amount less than that allowed under IRS § 162(h), the reimbursed amount is deductible from gross income in computing adjusted gross income (above-the-line deduction). The excess is deductible under the rules that require the special allocation.

If I choose to claim per diem amounts as described in the prior question, how do I elect it? | Top

The election to claim the IRS § 162(h) deduction must be made by the due date (taking into account extensions) of the tax return for the tax year at issue. The election is made by attaching a statement to the return that:
  1. Contains the taxpayer's name, address and TIN;
  2. Identifies the election;
  3. Indicates that the election is being made under IRS § 162(h);
  4. Specifies the period for which the election is being made; and
  5. Contains any information required by the Internal Revenue Code or necessary to show that the taxpayer is entitled to make the election.

If I choose to claim the per diem amount, can I deduct any other expenses? | Top

You may not deduct any other amount for meals, lodging or other living expenses for any legislative day, but you may deduct expenses for travel, telephone calls or local transportation.

Can I deduct the expense of meals I have purchased for constituents who have come to Richmond and other persons where it involved legislative business? | Top

Yes. Subject to the 50 percent limitation, the cost of meals paid for by you is an allowable deduction as long as that expense is related to legislative business. You must keep the receipt and record the name of those who attended the meal, the date, location and some specific information to show the business nature of the meal.

Because we are in Richmond for long periods of time, I find it necessary and desirable to have my spouse and children come to Richmond on occasion. Can I deduct the cost of their travel to Richmond and motel and meal costs? | Top

No deduction is allowed for travel expenses paid or incurred for a spouse, dependent or other individual accompanying a person on a business trip unless the spouse, dependent or other individual is an employee of the person paying or reimbursing the expenses, the travel is for a bona fide business purpose and the expenses would otherwise be deductible. This same rule applies if your spouse accompanies you on a trip for a legislative conference.

While in Richmond on certain special occasions such as Lee-Jackson-King Day, I will have a gathering of fellow legislators and other individuals connected with the legislature. Can I deduct this as a business expense? | Top

If the gathering can be shown to have a business purpose, it would qualify as a business deduction. You should have paid receipts for support and indicate the business purpose and who attended the function. Again, however, any food or beverage expenses would be subject to the 50 percent limitation.

If these occasions include business and non-business individuals, you must divide the expenses between your business and non-business elements. You can deduct only the business part, not the non-business part. For example, if you have 100 individuals at the event and 10 are non-business, you can only deduct 90 percent of the total cost.

At the end of a session, if fellow legislators and I take the secretaries who work long hours during the year out to dinner, or if we buy them candy, would this be a deductible expense? | Top

Fifty percent of the dinner expense would normally be deductible if the secretaries were employees of the legislators. Since the secretaries are employees of the state, there is a non-employee-employer relationship. To be deductible in the non-employee-employer relationship, the expense must be directly related to the active conduct of the taxpayer's trade or business. IRS regulations state that to satisfy this requirement the taxpayer must have "more than a general expectation of deriving some income or other specific trade or business benefit (other than the goodwill of the persons entertained) at some indefinite future time from the making of the expenditure."

In addition, there is a limit of $25 per recipient per year in the case of business gifts.

While in Richmond, I entertain at the Downtown Club. In order to use the Club, I must pay dues as well as the costs. Can I deduct the cost of these dues? | Top

No. Dues paid to these types of clubs are nondeductible.