Giving your workers access to company-owned vehicles, also known as “fleets,” can greatly benefit both employers and employees. If those fleets are not administered correctly, though, the potential benefits can quickly turn into burdens. Personal mileage reporting is a common area of confusion, particularly with so many workers now performing their duties off-site as part of the growing mobile workforce. Mistakes with personal mileage reporting can often land companies in hot water with the IRS, which has increased its audit focus on this area in recent years. Knowing the best way to report personal miles and business miles will save money, improve efficiency, and protect you in the event of a potential audit. As more workers continue to drive for business each year, waiting could cost your company more with each passing day.
Business and Personal Miles
Differentiating between personal and business fleet usage sounds simple enough – just track the mileage of each trip and then report that to the IRS at the end of the year, right? If only it were that easy. The IRS requires a wide range of information beyond miles driven. This includes the date, time, destination, business purpose, and all related expenses to be accurately and defensibly tracked with supporting documentation for every trip. This is complicated enough, but employees often use their company cars for personal reasons as well. A quick trip to the grocery store, a ride to grab lunch with a friend, picking up clothes from the dry cleaners—these can all be misclassified as “business” usage when performed during the work day. Because these benefits have been so often abused in the past, the IRS focuses on under-reported personal miles very closely. If you mislabel your mileage, you might not find out until you are on the wrong side of an audit.
Commute Miles and Mobile Workers
Do you consider your mobile employees’ commute miles as business or personal use? In general, the miles driven to and from the office are considered personal miles. Employees choose where they live, so their employers should not pay them more or less based on that decision. This can be confusing for employees using fleet vehicles, who may consider any time they are driving as “on the clock” hours. To complicate matters further, mobile employees follow different rules. The IRS considers an employee’s “work location” the place where they conduct 50% or more of their business. Mobile workers may leave directly from their homes for meetings, make multiple trips through the day, or work out of a field office.
According to the IRS, the distance mobile employees drive to their first work location of the day and the distance they drive from the last work location to their home is considered commute miles. The IRS allows for exceptions if the first visit is outside the worker’s “metropolitan area” (a radius of 10-20 miles from their home). Many employers misclassify these commute miles as business miles – this resorts to overpayment to employees and exposure to potential audits.
New Technology, Modern Solutions
Administering fleets while tracking all business and personal miles used to be a complex process that created mountains of paperwork for every trip. Sorting through forms, receipts, and spreadsheets created huge administrative burdens for managers; luckily that has changed. The same technology that has allowed workers to stay productive on the road has made recording and reporting the usage of fleet vehicles easier than ever before. Employers can use GPS-enabled devices to accurately track business and personal usage for all trips. Thanks to the digitization of our workplaces, the paperwork of the past has been replaced by electronic files and cutting-edge software. With a comprehensive software platform to manage these processes, reporting all personal and business miles at the end of each year is as simple as a few clicks.
The Bottom Line
Discerning between business and personal miles for corporate vehicles sounds simple. However, in today’s modern mobile workforce, this can become a very complicated process. Misclassifying commute or personal miles as business miles, for example, could ultimately land you in trouble when the IRS comes knocking.
Disclaimer: This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied upon for, tax, legal or accounting advice. Motus does not provide tax, legal or accounting advice. For any such advice, you should consult your own advisors.