Every year, the IRS sets a standard mileage reimbursement rate therefore employees, and employers can utilize it for tax purposes. This rate varies from year to year and applies to cars, vans, pickups, and panel trucks. Two major reasons are:
- To give companies a reasonable rate for compensating their employees who use their vehicles for business-related purposes.
- To provide employees with a rate at which they can deduct mileage on their income tax return if their company does not compensate for this expense, or does not reimburse the entire amount.
An employer like you can set a company mileage reimbursement program which can be beneficial on both ends, however, many small business owners are unsure of how to create and operate one and they end up making the same mistakes as other businesses did. The reason you have a reimbursement program is that you see it as a great fit for the business. However, you should know as and when to increase or decrease the rate. Your staff should also know what sorts of travel are qualified for a mileage allowance and how much they can be reimbursed. Regardless of whether you have a reimbursement program or not, employee mileage is still tax-deductible as long as it is driven for business purposes. If you don’t have one, you can use the standard set by the IRS on the standard mileage rate for the year 2021 as reference:
- 56 cents per mile driven for business purposes
- 16 cents per mile driven for medical, or moving activities
- 14 cents per mile driven in support of charitable organizations
If you choose not to reimburse your employees at all for business mileage, they can still get the money back by deducting their mileage expenses of driving for work purposes from their gross income on their taxes. All reimbursements provided to your employees for business mileage are tax-deductible expenses for the business as a whole. As a result, you have little to lose by repaying your employees for this expense. In fact, you have a lot to gain, most significantly, employee satisfaction, loyalty, and retention. You will be both happy by doing it as this is a mutually helpful opportunity to obtain tax deductions. Keep in mind that as an employer you must reimburse employees for work expenses in order to keep their take-home pay above the minimum wage. Otherwise, things will get complicated on your end if your employees receive less than the minimum wage. Though, additional regulations may apply in some states. Employers, on the other hand, are only required to compensate employees for “reasonably necessary expenses.”
Here are some tips:
- Knowing your rights as a taxpayer is a plus.
- Educating yourself and your staff about taxes so as to avoid any future dilemmas is crucial. You may read about Tips For Winning a Tax Audit and How to Prepare For a Tax Audit for additional knowledge and for more updated guidelines you can always visit the IRS page for tax tips.
- Inquire professional help from your tax attorney or CPAs if you have doubts or things get unfamiliar to you.
Lastly, make sure your business mileage log records are accurate, timely, complete, and organized. Must also be accessible in case of tax audit and make sure everything complies with the law. To make it convenient for your mileage data access you can use an online mileage log maker ExpressMileage to help you save time, effort, and money and get the maximum deduction that you deserve. However, take note that the IRS demands you verify your expenses with valid papers or supporting evidence to back up your claims.