Mistake #1: Counting Expenses TwiceThere are two methods you can use to calculate business-related auto expenses. Standard mileage rate, and actual expenses.Standard mileage rate is the easier of the two to track, so it’s the more popular method. However, like most tax deductions, it is not without its complications.Deducting both the standard mileage rate and other large expenses, such as car repairs, is a common mistake. And one that will likely attract attention from the IRS.The IRS already factors in standard costs, like repairs and gas, into the standard mileage rate, which changes year to year. So don’t reimburse any car repairs if employees will be using the standard mileage rate later on.Be sure to make this clear up-front to workers who participate in your employee mileage reimbursement program. A surprise about what will actually be reimbursed can turn a positive benefit into a negative hassle.
Mistake #2: Lack of Effective Tracking and ProofDocumenting business mileage is critical to any employee mileage reimbursement program.The IRS explains the guidelines for recordkeeping in section 5 of IRS Publication 463.To prove business travel, you must record and account for every reimbursement payout to the employee.Have your employees keep records of each trip. These include:
- Mileage of each business trip
- Date of the trip
- Destination of the trip
- Purpose of the trip
Mistake #3: Counting mileage from home to workThis is a critical point to make clear in your employee mileage reimbursement program. Mileage from home to work, and from work to home, does not count as business use.This can come as a surprise to some people, so here it is again: according to IRS Publication 463, commutes are considered personal expenses.This rule also applies if the employee works during their commute. So that self-driving car won’t help employees earn any more business mileage to be deducted.Make sure employees know this before starting to track their mileage. Even if it’s a mistake, reimbursing for personal mileage can create a major headache in the case of an audit.
Mistake #4: Counting office parking feesFees to park vehicles at your place of business are non-deductible commuting fees, according to IRS Publication 463.Many employees pay for street parking or for parking passes to come to work. These expenses are non-deductible, and shouldn’t be reimbursed under a mileage reimbursement program.However, parking fees for visiting with clients or customers are deductible. So it is fine to include them in a reimbursement policy.Once again, it’s important to make this clear in the policy. Make a clear differentiation between the two types of parking fees if you will be reimbursing employees for visiting clients.Related Articles you may find them interesting:
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- What is an Expense Report? Why we need it?
- How to save business money with reimbursement plan
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- How to Build The Best Expense Policy For Your Business
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- 5 Easy Steps: Guide to Employee Expense Reimbursement
- How to Stop Expense Reimbursement Fraud
ConclusionSetting up a mileage reimbursement program can be a challenge. But, make sure you don’t make these four mistakes, and you’ll be off to a good start.Remember, always keep employee policies easy to understand. It’ll make life easier for everyone.Have you seen other mistakes or been confused by a mileage reimbursement policy? Let us know in the comments.
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