IRS Mileage Guidelines: The New Deduction Allowance?
The Internal Revenue Service (IRS) recently issued new per-mile deduction guidelines for employers that reimburse employees who use personal cars for company business. What are these new IRS mileage allowances, and how will they affect your company?
IRS Mileage Reimbursement Increases
The IRS is now allowing employers to deduct, without detailed documentation, up to 48.5 cents per mile for the reimbursement of employees who use their own cars for company business. This IRS mileage guideline became effective on September 1, 2005.
This is an 8-cent increase over the 40.5-cent-per-mile rate in effect for the first two-thirds of 2005. That rate was a 3-cent increase from the 37.5-cents-per-mile rate in effect in 2004. Employers may pay more or less than this amount, but if the approved rate (or a lower rate) is used to reimburse employees’ automobile expenses, the IRS will consider that the substantiation and adequate accounting requirements of its mileage regulations are satisfied without extensive documentation of actual expenses.
Your company may deduct reimbursements at a higher rate, but only if the reimbursements reflect the actual cost of the travel, and only if you keep adequate records to substantiate your outlays. Reimbursements for tolls, parking, etc., may be deducted in addition to the mileage allowance. (Most organizations that reimburse for mileage also reimburse employees for parking and toll charges. Receipts or specific information are usually required before the employee is paid.)
Keeping Records of Business Travel Mileage
The IRS mileage requirements currently do not require businesses to keep contemporaneous logs listing the details of every mile of business travel. However, it would be wise for your company to require employees who use personal cars for business to keep records of the mileage and related expenses that were incurred, as well as whom they went to see, when (time, date, and duration), and for what purpose. Further, your company should have a statement of policy that describes these recordkeeping procedures and how reimbursement will be made. This statement should include a notice that
reimbursements will be made only for company business.