Should I try to 'flip' some real estate?

CARPE DEDUCTIO
Q: I am starting work as a consultant. The company that has hired me is offering salary plus per diem. Is per diem considered income? is it taxable or nontaxable?
-- Gregory H., Columbia, S.C.

A: Any money you get for work performed is income. If the money is paid to you as an employee, it’s wage income and goes on your 1040. If it’s paid to a consulting firm you own, it could be considered business income and accounted for in a variety of ways — depending on how the business is set up. (If you want to take that route, you should definitely consult a good accountant or tax attorney).

“Per diem” (from the Latin: “by the day”) usually refers to payments that are intended to cover daily expenses like meals and transportation. Companies do this because it’s a lot simpler just to pay you a daily lump sum than it is to set up an expense account, collect receipts, reimburse you for these expenses and keep records for their tax return.

But that per diem is still income. You can deduct any business expenses from that income, and you’ll need to keep good records and receipts (for three years after you file your return).

So if your expenses on any given day don’t use up your per diem, you’ll owe taxes on whatever is left over. On the other hand, if your daily expenses exceed the per diem, the added expenses will cancel out income on which you would have owed taxes.

As for what’s deductible, that’s been the subject of some of the taxpaying public’s most creative accounting. Like the store owner who tried to deduct his payment to an arsonist to torch the place or the guy who wanted to deduct dog food as a “security expense.”  

If you’re going to go for deductions beyond the basics (out-of-town travel, lodging, meals, office supplies, etc.) you’d better read up on what the folks down at the IRS have to say about what is, and is not, a legitimate business expenses. (Publication 463 spells out the details.) In the section on entertaining clients, for example, you’ll learn that fishing bait for a trip to the lodge with clients is okay. But the cost of a rented luxury skybox is not. Go figure.

You’ll also find that even simple questions aren’t that simple once the IRS gets involved. But they’ve thought long and hard about all this and come up with more answers than we could fit in a year’s worth of this column. So before you get creative, check the IRS Web site: they’ve probably got it covered. (Like this handy chart which local travel expenses are deductible.)

OUR STOCK ANSWER
Q: When is Citigroup going back to those days of stock growth and splits? When can we expect it to reach $65 again? -- Neil H., Reading, Pa.

A: Sorry, we don’t comment on individual stocks. We figure there are already more than enough opinions on the subject. And the last place you want to look for stock recommendations is from some guy you've never met who writes on the Internet.

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