Per Diem Rates from the U.S. General Services Administration

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Rates are set by fiscal year, effective October 1 each year. Find current rates in the continental United States ("CONUS Rates").

Per Diem Rates

Taxpayers Allowed to Use the Cash Method

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The following taxpayers may use the cash method (Text of Revenue Procedure 2002-28 and Examples):

• Individuals
• Service businesses
• Custom manufacturers
• Qualified Personal Service Corporations (PSC)
• Farming businesses
• C corporations with average annual gross receipts of $5 million or less for the three previous years
• Partnerships with a C corporation as a partner with $5 million or less in average annual gross receipts for the three previous years.

Individuals

Most individuals file a tax return on a cash basis. They report income actually or constructively received during each tax year.

Service Businesses

A service business with average annual gross receipts of $10 million or less in the previous three years can use the cash method even if it sells merchandise related to the service or must use materials and supplies in the performance the service.

Example:

You're a sole proprietor and operate a large established pool cleaning service throughout your state. In addition to the cleaning service, you also sell pool cleaning supplies and pool recreational items out of your retail stores. Your average annual gross receipts for the last three years were under $10 million.

The pool service is your principal activity; it accounted for 70% of gross receipts in the prior year. Sales of pool supplies and recreational items accounted for 30% of gross receipts in the prior year.

The retail part of your business is one of the five principal activities listed in the North American Industry Classification System (NAICS) codes as prohibited from using the cash method (retail, wholesale, manufacturing, mining and information industries).

You can use the cash method for both the service and retail activities. Here's why:

While the retail activity is a prohibited activity in terms of using the cash method, it is not the principal business activity. Had the retail activity been the principal activity, then the accrual method would have to be used both activities (assuming you only use one set of books to account for both activities).

Using two sets of books:

If you use two separate and complete sets of books to account for each activity, then the cash method could be used for the the service activity, which is an eligible activity. However, you must account for the prohibited activity, retail sales, under the accrual method.

Custom Manufacturers

Custom manufacturing refers to fabricating or modifying property upon demand in accordance with customer design or specifications. If you operate a custom manufacturing business with average annual gross receipts of $10 million or less for the three previous years, you can use the cash method.

The cost of materials and supplies used in the performance of the service must be deducted when:

• Provided to customers or
• When you pay for them,
• Whichever is later.

Qualified Personal Service Corporations (PSC)

A qualified personal service corporation may use the cash method if it meets both the function and ownership tests.

Function Test:

At least 95% of its activities are in the performance of services in the fields of:

• Accounting
• Actuarial Science
• Architecture
• Consulting
• Engineering (including surveying and mapping)
• Health
• Law
• Performing Arts
• Veterinary Services

Ownership Test:

At least 95% of its stock is owned, directly or indirectly at all times during the year by one or more of the following:

• Employees performing services for the corporation in a field qualifying under the function test.
• Retired employees who had performed services in those fields.
• The estate of an employee described in (1) or (2).
• Any other person who acquired the stock by reason of the death of an employee referred to in (1) or (2), but only for the 2-year period beginning on the date of death.

Farming Businesses

For tax years beginning in 2019, farm corporations or partnerships that have average annual gross receipts of $26 million or less for the 3 preceding tax years and are not tax shelters can use the cash method instead of the accrual method.

See publication 225, Farmer's Tax Guide, for more information.

C Corporations and Partnerships

A C corporation or a partnership with a C corporation as a partner may use the cash method if:

• The production, purchase, or sale of merchandise is not an income-producing factor, and
• The corporation's average annual gross receipts for the three previous years were $5 million or less.