Keeping accurate mileage records for the IRS is crucial

August 11, 2010

Nearly all businesses require some kind of travel by their employees using their personal vehicles. The IRS recognizes several methods for allowing deductions by your business or the individual employee. Knowing what is required is crucial because it is one of the IRS’s most looked at deductions for businesses.

 

Mileage recors Mileage records

If you are a business owner you have several choices to make about how you treat employee mileage.

You can elect to not reimburse an employee for miles driven for the benefit of your business and then transfer all of the recordkeeping responsibilities to them. This is most often done for commission based sales representatives who are paid well for bringing in business. Seasoned sales professionals know how to keep their records and report them as deductions to their income on their personal IRS tax return.

The second method of handling an employee’s use of their own vehicle for your business is to provide them a fixed monthly car allowance. This is most often chosen for non-sales personnel who must use their personal vehicles on a regular basis. This requires the employee to maintain the mileage records. If you provide an employee a $150 per month car allowance it is treated as additional income to the employee for tax purposes, but doesn’t require you, the business owner to maintain records other than payroll records. The employee knows that the $150 car allowance is being paid to him as a fixed compensation for use of his personally owned vehicle for your business.

The last method and most common is the per mile reimbursement method. The IRS has changed the amount of reimbursement deductable by a business a number of times during the last 4-5 years.

The current mileage reimbursement rate effective for 2010 (to date) is 50 cents per mile.

If you elect to reimburse your employees for their mileage you must keep records of their miles driven. That means each employee must keep track of the date and time of their travel, business purpose, people seen during the travel, and the beginning and ending location of the travel. Most businesses use an expense reimbursement form for this purpose. Most importantly, you must have your employee sign the expense reimbursement form and in order for your business to claim the amount reimbursed for travel, you must be able to show the records that your employee completed.

For the IRS to consider mileage reimbursement there is a rule that the records must be kept contemporaneously. This means that an employee must complete record the information about each trip traveled as reasonably close to the time they made it. Really what the IRS is trying to prevent is someone filling out a mileage long at the end of the year.

Keeping employees honest is important because mileage fraud is a significant problem. Though as long as you require an employees mileage records in the format the IRS wants to see them turned in before you reimburse them you should not face any issues with the IRS.

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Topics: Operations, Management, Accounting & Finance

Ed Lette

Business Bank of Texas

Ed Lette is Founder, Vice Chairman of the Board of Directors at Business Bank of Texas. Serving as a licensed CPA since 1983, Ed’s extensive experience in the banking industry has led him to become the founding president of four national bank charters including Business Bank of Texas, N.A., and the chief financial officer of five national banks during his 45 year career. Ed serves as director of the Texas Bankers Association District 4, chairman of the Executive Advisory Council to the School of Business at Texas Lutheran University, and is a life member of the Texas Association of Business.
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