Mileage Reimbursement & Expense Reporting,
Oh My!
Table of Contents
IRS optional standard mileage reimbursement rates, accountable plans & digital tools to the rescue.
Do you or your company plan to deduct mileage using optional standard mileage rates in 2021? Furthermore, do you or your company have broader expense reimbursement needs beyond using vehicles for business?
If so, you likely know that IRS mileage reimbursement and expense reporting rules get updated year to year. And 2021 is no exception! Furthermore, there are a number of tools to support these endeavors.
Throughout this article, we will focus on mileage reimbursement and expense reporting, highlighting IRS optional standard mileage reimbursement rates, accountable plans and digital tools to the rescue.
Calculating Costs Using Vehicles for Business
When it comes to using vehicles for business, taxpayers must first begin by determining which calculation method to use. To this end, the IRS offers 2 options:
- The Actual Expense method
- The Optional Standard Mileage method
Each method has its advantages and disadvantages and often produce vastly different results. While actual Expenses might produce a larger tax deduction one year, applying the Optional Standard Mileage may produce a larger deduction the next.
Actual Expense Method vs. Standard Mileage
The Actual Expense method is the sum of actual money spent while using a vehicle for business. From there, all expenses are added up and multiplied by the percentage of the vehicle’s business use. Some of the costs included in Actual Expenses are:
- Lease payments
- Auto insurance
- Gasoline
- Maintenance (such as oil changes, brake pad replacements, tire rotations)
- New tire purchases
- Title, licensing, and registration fees (not deductible in all states; check with TurboTax to see if this expense is deductible in your state)
- Vehicle depreciation
In contrast, the Standard Mileage method is a much simpler way of calculating the business use of your car. It does not require you to track individual purchases and save receipts. Instead, the IRS provides rates (adjusted annually) that one uses to calculate reimbursement amounts.
The Standard Mileage method requires that you maintain a log of qualifying mileage driven. According to the Internal Revenue Service, they are quite specific on the following points:
- At the start of each trip, taxpayers record trip details. This includes the odometer reading, trip purpose, starting and ending location, and date.
- Upon concluding the trip, taxpayers must determine the total mileage. To do so, recording the final odometer reading and subtracting it from the initial reading does the trick!
2021 Standard Mileage Rates Announced!
The 2021 optional standard mileage rates apply for figuring deductions using cars, vans, pickups, or panel trucks for business, charitable, medical, or moving expense purposes. You will find the current 2021 rates below:
- 56 cents per mile driven for business purposes (down from 57.5 cents per mile in 2020).
- 16 cents per mile driven for medical, or moving purposes for qualified active-duty members of the Armed Forces. These are down from 17 cents in 2020.
- 14 cents per mile driven in service of charitable organizations (remains unchanged from 2020).
Expense Reimbursement Beyond Mileage
While deducting mileage is exciting stuff, it is only one aspect of expense reimbursement to consider. To this end, what about other adjusting tax rules beyond standard mileage rates?
The Tax Cuts and Jobs Act (TCJA) has redefined many of the rules regarding expense deduction. One noteworthy change made by the TCJA increased the standard mileage deduction rates, leading to fewer individuals itemizing deductions. Contrastingly, the TCJA disallows employees to personally deduct out-of-pocket expenses incurred for business purposes. Hummmm!
Fast forward to recent COVID days. With more and more people working from home, home office reimbursement questions may arise.
There is a win-win solution to help employers and employees navigate the complexities of expense reimbursement. Implementing a reimbursement plan can go a long way to establish clear guidelines and mitigate frustrations for all involved.
100% Tax Deduction For Food or Beverages
Do you deduct business meals? If so, the IRS and Treasury has issued a little know secret for 2021 that you won’t want to miss! As shared in the April 8th announcement, The Taxpayer Certainty and Disaster Relief Act of 2020 has added a temporary exception to the 50% limit on the amount that businesses may deduct for food or beverages which allows a 100% deduction for food or beverages from restaurants.
Claiming 100% of food or beverage expenses sure sounds awesome to us! Rules apply, so be sure to check specifics posted to the the IRS website.
IRS Small Business Tax Resources
In addition to Coronavirus Tax Relief information, the IRS has a variety of free and useful resources for businesses. One series of note is their Small Business Tax Workshop. Chuck full of useful tax hacks, their fully transcribed videos are presented in an easy-to-use format and have been designed to help business owners understand and meet federal tax obligations.
Broken up into 8 lessons, the first four may be relevant for everyone no matter what kind of business they have or whether they have employees. Subsequently, the remaining four lessons are for those who already have or who are thinking about hiring employees.
- Lesson 1: Federal Taxes And Your New Business
- Lesson 2: Schedule C And Other Small Business Taxes
- Lesson 3: Filing And Paying Taxes Electronically
- Lesson 4: Business Use Of Your Home
- Lesson 5: Federal Taxes When Hiring Employees Or Independent Contractors
- Lesson 6: Managing Payroll To Withhold The Correct Amount Of Taxes
- Lesson 7: Tax Deposits And Filing A Return To Report Payroll Taxes
- Lesson 8: Hiring People In The US Who Aren’t Citizens
Accountable Plans – A Sound Strategy For Your Business & Employees?
Just how can employers assist employees, while taking advantage of business deductions? As outlined in an October, 2020 blog posted by EisnerAmper, accountable plans may just be a sound solution!
Just as the IRS has guidelines to keep everyone informed and on the same page, so too can businesses. An accountable plan is a method for reimbursing employees for business expenses that complies with IRS regulations.
Accountable Plans reinforce IRS rules and can be used to streamline and standardize expense reimbursement across an organization. An accountable plan must include the following three elements in order to be considered:
Firstly, the expenses must have a business connection; that is, they must have been paid or incurred while performing services as an employee.
Secondly, the employee must adequately account to the employer for these expenses within a reasonable time.
Thirdly, the employee must return to the employer any amount in excess of the substantiated expenses that was not spent.
There is a wealth of information regarding accountable plans out there on the web! Sites to check out include The Journal of Accountancy, as well as other CPA sites! Both provide templates and explain how accountable plans can protect companies as they reimburse employees. Now that’s a win-win!
Digital Tools To The Rescue!
It’s a great day in age with so many apps to help tech savvy employers and employees save time, simplify logging mileage and streamline expense reporting.
Two such apps come to light!
MileageWise is a single-purpose app to consider for tracking and logging mileage. Their built-in mileage tracker, IRS auditor, and mileage reimbursement calculator help employers get the most out of their reimbursement plan, while employees are able to easily track trips and choose from multiple recording options.
GOeConcierge is a digital organizer created by our team of travelers. Designed to streamline organization, collaboration and expense reporting, this multi-purpose app takes mileage tracking one step further.
Not only will GOeConcierge track mileage and create a mileage log, but it also captures all other business expenses and populates a customized expense report too. For those interested in building in their accountable plan template, you guessed it, it does that as well. Pretty cool!
MileageWise and GOeConcierge both support rideshare drivers (think Uber, Lyft, and DoorDash) who need to capture exactly how many miles driven for work. Keeping digital mileage logs provide drivers the ability to revise past and fragmented mileage logs or missing miles while providing coherent IRS-compliant documentation. Money in the bank!
Record! Record! Record!
While the travel scene is coming out of it’s post-COVID slumber and re-awakening as a redefined industry, one thing has stayed consistent. That is the need to keep sound records for tax purposes.
Regardless of one’s approach to capturing and reimbursing expenses, keeping sound documentation is the name of the game. Thankfully, there are a host of great apps to leverage one’s time, save valuable energy, and streamline the overall expense reporting process.
Cheers to your continued success, no matter where your journey takes you!
We’re Curious … How You Are Preparing For The ‘New Normal’ Of Travel?
As the hospitality scene comes out of it’s post-COVID slumber and re-awakens as a redefined industry, just what will the ‘New Normal’ of travel look like?
Our team at GOeConcierge is interested in your opinion. What do you think the ‘New Normal’ of travel will look like and how will these anticipated changes impact you? If you have dusted off that wheelie bag, dipped your toe in and tested the waters, what have your experiences been so far?
