Transportation costs money, and whether you're driving your car, cycling to work or using public transit - your work-related trips are business expenses and are therefore tax deductibe. This means that you can get those expenses reimbursed, tax-free.
Here are the most obvious reasons for why you should track your trips daily.
Track business use of your private car
- Any drive you make with your private car for carrying out work-related duties is considered a business expense and is therefore tax deductible.
- In order to claim business expenses for driving your private car for work, you must keep detailed records of your business trips, aka a mileage logbook.
- Note that commuting from home to your regular place of work is not considered a business trip and is not tax-deductible.
The IRS provides 3 alternative methods for reimbursing vehicle expenses to employees:
- Car Allowance - this is a fixed amount paid to the employee every month. Maintaining a mileage logbook is not required for this method. However, due to its "fixed" nature, the car allowance method is considered neither accurate nor fair, and is therefore discouraged.
- Standard Mileage Rate - this method sets a rate per mile that you can use to figure out the deductible car expenses. You must keep a mileage logbook in order to claim mileage / travel expenses using this method.
- FAVR - stands for Fixed And Variable Rate. The employer pays an allowance that includes a combination of payments covering fixed and variable costs.. Again, keeping a mileage logbook is required in order to calculate the business use of the vehicle, and prorate the reimbursement amount accordingly.
We have covered the above methods in more detail in Employee Vehicle Expenses - The IRS Accountable Plans.
A mileage logging app running on your phone can save you a lot of time and effort by automatically logging all your trips. Psngr app automates mileage tracking by logging all your trips. In additional, Psngr learns your driving patterns and auto-classifies repeating trips for you. This saves you more time and effort, so you can focus on your business. The app works in conjunction with Psngr Beacon, to ensure every drive made with the vehicle is logged, by any driver. This ensures that your vehicle logbook is complete and that the actual business use can be properly calculated.
Track personal use of your company car
The personal use of your company car is considered a "benefit in kind" and must be added by your employer to your gross salary so that you pay income tax on this benefit.
Which trips are considered "personal use"? Here are some examples:
- Each commute from home to your regular place of work
- Each ride from a non-work-related place to your main place of work, for instance from your son's school to your office.
- Each ride made with the vehicle by a family member of the employee.
In the US, the IRS lists several ways to determine the value of the personal use of a company car in Publication 15-B: Employer's Tax Guide to Fringe Benefits:
- General Valuation Rule - uses the Fair Market Value (FMV) of the vehicle to determine the value of the personal use. FMV is the amount an employee would have to pay a third party in order to buy or lease the vehicle.
- Cents Per Mile - determines the value of the personal use of the company car by multiplying the standard mileage rate by the total #personal miles the employee drives the vehicle.
- Commuting Rule - determines the value of the personal use by assuming all personal use is for commuting, hence multiplying each one-way commute by $1.50.
- Lease Value Rule - for a leased company car, its value is determined based on the annual lease amount. You then multiply the annual lease value by the percentage of personal miles out of total miles driven by the employee.
The methods above provide alternative ways to quantify the monetary value of the personal use of the company car. It is that personal use that is considered "benefit in kind" and must be taxed. However, note that each of these methods assume that you properly log and report personal use, i.e. miles driven with the company car for personal purposes. Of-course, you must keep detailed records of your trips and present them in case of a tax audit.
Keeping a mileage logbook is therefore crucial also when driving a company car, in order to properly calculate the personal use of the car and to minimize your "benefit in kind".