As a fisher, whether a boat owner, operator, or crewmember, you may incur significant expense for subsistence while pursuing your trade.
Meals are deductible only when:
- you are away from your tax home in pursuit of your trade, and
- your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties.
To determine your eligibility to deduct meals, you must first determine the location of your tax home. Generally, your tax home is your regular place of business or post of duty, regardless of where you maintain your family home. If you have more than one place of business, your tax home is your main place of business. The following factors are considered when determining your main place of business or work:
- The total time you ordinarily spend working in each area,
- The degree of your business activity in each area.
- The relative amount of your income from each area.
Therefore, depending upon your particular facts, your main place of business or work (your tax home) may be a port, a vessel, or the business location of the primary business you conduct during non-fishing months (if any).
The importance of determining the location of a fisher's principal or regular post of employment (tax home) is evident not only because the fisher cannot deduct the cost of his or her meals and lodging while there, but also because that location must serve as the point of origin for computing his or her traveling expenses incurred while “away from home.”
Calculating Meal Expense
When meal expense is allowable, the calculation of the deductible meal expense can by made either using the actual cost method or the standard meal allowance method. The standard meal allowance method allows you to deduct a set amount instead of keeping records of your actual costs. The standard meal allowance refers to the federal rate for M&IE (meals and incidental expenses), which varies by area and when you travel. If you use the standard meal allowance, you still must keep records to prove the time, place, and business purpose of your travel.
Note: There is no optional standard lodging amount similar to the standard meal allowance. Your allowable lodging expense deduction is your actual cost.
Standard meal allowance rates are established by area and are revised regularly to reflect adjustments in locality costs. Current per diem rates may be found for the contiguous 48 states on the U.S. General Services Administration (GSA) website. Other information regarding per diem rates, such as substantiation methods and transition rules, may be found in Publication 463, Travel, Entertainment, Gift, and Car Expenses. Per diem rates for Alaska, Hawaii, and foreign locations can be obtained by visiting the Department of Defense, Per Diem, Travel and Transportation Allowance Committee website.
The following information focuses on the standard meal allowance method for M&IE, which is commonly known as the “per diem” method and the application of this method to self-employed vessel owners and operators and self-employed crew members.
Self-employed fishers are on occasion away from their tax home and are thus entitled to use the per diem method in calculating M&IE for the expenses incurred while away from their tax home. Discussed below are the two most common arrangements negotiated between vessel operators and crew members to establish who will pay for the meals.
- The vessel operator pays for the meals, but the self-employed crew members are required to share equally in the burden of the expense. Usually, the crew members' shares will be withheld from their fishing trip settlement. In this scenario, the crew member has, in effect, incurred the expense. Therefore, self-employed crew members qualify to use the per diem method (in lieu of the actual method) to calculate their deductible expense for meals incurred while away from their tax home. Self-employed vessel operators are only eligible to deduct their own meals incurred while away from their tax home. The crew member, when preparing his/her return, must include in income the gross fishing proceeds (the gross fishing proceeds prior to reduction for items withheld, such as meals, fuel, and bait). From the gross fishing proceeds, the allowable away-from-tax-home meals are deductible.
- The vessel operator pays for the meals without any crew reimbursement. In this scenario, crew members would NOT be entitled to any meal deduction because their meals were provided by the vessel operator. In fact, if the vessel operator provided meals to crew members while at their tax home, the value of these meals should be included in the Form 1099-MISC as additional income to the crew members. If the vessel operator is self-employed, their meal expense can be calculated by using the actual method for all (both crew members and the vessel operator) or by using the actual method for the crew members and the per diem method for the vessel operator. The vessel operator CANNOT use the per diem method to calculate the deductible meals provided to the crew members.
Reminder - After the away-from-tax-home meal expense is calculated, it must be reduced by 50 percent (50%) to arrive at the deductible meals. If the per diem method is used to calculate meal expense, the entire portion (M&IE) is considered food for the purposes of the 50% reduction rule.