Mileage logs are one of the most important tools mobile workforce managers use to capture, reimburse, and report on employees’ business driving. If used effectively, mileage logs create a clear picture of personal and business usage that is both accurate and defensible in the event of an audit.
Unfortunately, both employees and employers often incorrectly classify business and personal mileage, particularly when it comes to commute miles. Many are also unfamiliar with the full range of details they must report (everything from miles driven to business purpose for each trip). These misunderstandings often mean paper mileage logs are incomplete or fraught with inaccuracies. As a result, many companies are beginning to replace manual mileage logs with automated solutions that can help ensure IRS compliance, save costs, increase efficiency, and more.
Commute mileage is the distance employees drive from their homes to their regular place of work and back again. The IRS generally considers commuting costs as personal expenses which are nondeductible. Because commute miles are considered personal rather than business related, employers usually don’t need to (and shouldn’t) reimburse employees for their daily commute.
This is straightforward for traditional office workers, but what about mobile workers, who typically work in the field and make multiple work-related trips throughout the day? In general, the IRS considers the miles driven from their home to their first work location and from their last work location back home commute miles. Many mobile workers are unaware of this designation and mistakenly report their first and last trips of the day as business miles to be reimbursed. This results in increased risk in the event of an audit and increased costs for employers who are over reimbursing employees for these miles.
When this error occurs each day and is multiplied by dozens of employees, the costs can quickly add up to tens of thousands of dollars wasted annually. Add on a failed IRS audit, and the costs compound through taxes and penalties.
IRS-Compliant Mileage Logs
Every business trip must be tracked and documented to substantiate mileage reimbursements. And while many companies collect total mileage from employees, the IRS requires a wide range of information that many employee mileage logs don’t even begin to cover. The mileage, date, destination, and business purpose must be recorded for every business trip. Because business travel expenses have been reported incorrectly so often in the past, the IRS now focuses on auditing these deductions in particular.
Failing to follow their guidelines completely can result in more than just an administrative headache: A California business owner’s handwritten mileage logs cost him a $5,309 deduction plus an accuracy penalty when an IRS audit found his mileage logs fell woefully short of their standards. A mobile worker in Missouri saw her $8,340 deduction for driving 18,741 miles replaced with a $2,430 deficiency that she had to pay as the result of an IRS audit. The U.S. Tax Court disallowed her mileage deduction even while admitting that she likely drove her vehicle for business use. The reason? Her daily mileage logs noted only odometer readings, not all the information the IRS requires, and did not differentiate between business, commuting, and other personal miles.
Automated Mileage Tracking Solutions
In the past, mobile workers had to create, maintain, and report these detailed mileage logs by hand, for every single business trip. Fortunately, this is no longer the case. Mileage logs, like most of our business processes, have gone digital.
Instead of pen-and-paper mileage logs, employers can leverage GPS-enabled smart devices to automate employee mileage tracking and accurately differentiate their employees’ exact business, commute, and personal miles. With the right mobile applications and software platform, employers are able to eliminate manual tasks in the field (ultimately increasing productivity), reduce costs, and ensure IRS compliance – all while gaining insight into driving behaviors and mobile workforce efficiency.
The Bottom Line
Mileage logs are a key tool for effective mobile workforce management, but they are only useful when complete and accurate. Failing to document all the information required by the IRS—everything from miles driven to the purpose of each visit—can land you and your employees in hot water.
Confusing commute miles for business miles can cost you thousands of dollars per employee and is not IRS-compliant. But luckily, new mileage tracking apps have made creating, maintaining, and reporting accurate mileage logs easier than ever. Those who ditch last century’s paper mileage logs for digital options see the benefits immediately, while those who continue to wait risk inaccurate and costly mileage reimbursements and the ever-present threat of being unprepared in the event of an audit.