Each year, the Internal Revenue Service (IRS) reviews its standard business mileage rate and adjusts as needed. The standard business mileage rate functions as a safe harbor to compute the tax deductible costs of operating a business vehicle. The IRS recently announced a new mileage rate of 53.5 cents per mile, effective beginning January 1, 2017. This new rate is down 0.5 cents from the 2016 rate of 54.0 cents per mile.
When reimbursing personnel, businesses can choose between flat car stipends, fixed and variable rate programs, the IRS rate, or a cents‑per‑mile rate that differs from the IRS rate. Most organizations use the IRS rate to avoid complexity and confusion when compensating employees.
Be sure your employees are logging the correct information so that you don’t lose tax deductions. In their log, employees should first record the auto information, including owner information, vehicle information, and insurance information, as well as the odometer reading at the beginning of the year. Employees should record both miles driven and costs to maintain the vehicle during the year. It is imperative that accurate documentations of both are kept in order to capitalize on your eligible deduction because the IRS allows you only one of two methods to deduct eligible auto expenses, either the standard mileage rate or the business portion of actual expenses. At the end of the year, employees will record the closing odometer reading. The annual auto mileage and expense logs are proof of your deductions and validation of business use of your vehicle. If you fail to keep timely and accurate records, the IRS can disallow tax deductions for your auto mileage and expenses.
For more information on auto mileage and expense tax deductions, please contact Joe Musumeci at 443‑725‑5395.