Others opt out of the depreciation component and pay the mileage rate less the value for depreciation (about 17 cents/mile). Most businesses pay employees the going rate advocated by the IRS as reimbursement to the employee for the use of their car. The most expensive variable is fuel with depreciation in a close second. The current amount for 2017 is 53.5 cents per mile. The cost per mile over the last ten years has ranged from 46 cents to 58 cents. Each year the IRS evaluates various costs including fuel, insurance, maintenance, repairs and depreciation From this information the IRS calculates what it determines is the cost to operate a vehicle each year using reasonable number of miles driven. The keys are hidden in the underlying elements of the IRS formula.
How is this so much more advantageous than actual costs?
However, the business must still track actual costs as explained in Lesson 60. Congress allows up to five vehicles to utilize the mileage deduction instead of using actual costs. Over time the IRS expanded this paperwork reduction to other forms of small business (S-Corporations, Partnerships and Trusts). This mileage deduction reduced paperwork and simplified the capitalization issues (purchasing a separate vehicle for the business). The information is reported on Schedule C of Form 1040. Up until several years ago the IRS allowed small business (single owner types) to claim mileage deduction (a value per mile driven) when using the owner’s vehicle for business purposes in lieu of purchasing a vehicle strictly for the business. Finally, no system can operate efficiently without proper policies and documentation procedures. Third, a good system that works with an employer/employee reimbursement relating to employees using their personal auto for their employer’s needs is explained. Secondly, the bookkeeper/accountant must recognize that this method is an alternative method used when filing tax returns and how it is a tax basis difference. First, the bookkeeper needs to understand the formula and the two variations of the formula. To appreciate how mileage reimbursements work, this lesson breaks it down into four major sections. No matter how mileage reimbursement is used, it is the responsibility of the bookkeeper to track mileage reimbursement expenses for accounting and tax compliance purposes. Some simply take advantage of the tax benefit of the mileage deduction for tax purposes. Other small businesses augment their existing vehicle fleet by paying employees via mileage reimbursement for the use of the employee’s automobile. It is a very advantageous system if used correctly. Some small businesses manage transportation costs in incremental payments by utilizing mileage reimbursement. Bookkeeping – Mileage Reimbursement (Lesson 61)
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