Businesses can avoid trouble with mileage expenses by following a few simple rules.
For starters, businesses can deduct mileage expenses only when certain standards are followed. The same requirements apply to self-employed individuals deducting business mileage, and companies that reimburse employees for business miles.
Adequate records are required for business mileage deduction. They must document the date, place and business nature of the vehicle use. Employees who obtain reimbursement for business miles must provide this record to you. A single record is permitted for several business stops on an uninterrupted trip. Minimal personal use is considered an uninterrupted trip.
The Internal Revenue Service (IRS) establishes a standard mileage rate at least annually. The tax deduction for mileage cannot exceed this rate. Because the rate is announced in advance, you can obtain it from the IRS website or your accountant.
Your employees must return any reimbursements that exceed the standard mileage rate or that aren’t substantiated by records provided to you. In addition, employees must provide their business mileage records within a reasonable amount of time. The IRS considers 60 days after incurring the business miles as reasonable.
Mileage reimbursements are not taxable income to employees who provide the required records and receive no more than the standard IRS rate. When these conditions are not met, the excess reimbursement is added to employee compensation and reported on the annual Form W-2.