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Tax Talk with George Saenz

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Deducting partially reimbursed mileage

Dear Tax Talk:
I receive expense reimbursements for mileage from my employer for my car use in my outside sales job. If I receive 29 cents per mile from my employer and the amount that Internal Revenue Service allows me to declare is 34.5 cents per mile, can I take a deduction for the difference between the two? Are the reimbursed expenses that I receive from my employer considered taxable income, as they are not reflected in my W-2?

Dear John:
Apparently, your employer doesn't believe in keeping up with the IRS's standard mileage rate for employee business use of a vehicle. Since your reimbursement is less than that allowed by the IRS, you have an opportunity to gain some additional tax deductions.

The business use of your vehicle is deductible on Form 2106, Employee Business Expenses. You can choose to claim either the standard mileage rate of $0.345 (in 2001; it goes to $0.365 in 2002) on line 22 of Form 2106, or you can use your actual expenses of operating the vehicle, if they are more.

When figuring your actual expenses, you can include gas, insurance, repairs, maintenance, tags, washing, waxing, AAA, etc. If you lease the vehicle, you would include lease payments on line 24a. If you own the vehicle, you would claim depreciation on lines 30 to 38. As an employee, interest on an owned vehicle is not deductible. This limitation generally makes leasing a vehicle result in a greater tax deduction.

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The amount of employer reimbursement is not included in your Form W-2 if you account to your employer for the business miles driven. However, if you choose to claim employee business expenses on Form 2106, the amount of reimbursement not reported on your Form W-2 reduces your deduction, Line 7 Column A.

Your net employee business expenses are a miscellaneous itemized deduction on Schedule A reduced by 2 percent of your adjusted gross income. What this means is that if you're not otherwise itemizing your tax deductions, such as state and local taxes and mortgage interest, the employee business expenses alone may not give you any tax benefit.

Additionally, if you earned $50,000, your net employee business expenses (after being reduced by your reimbursement) together with any other miscellaneous itemized deductions are further reduced by 2 percent of AGI, or in this case $1,000. Therefore, unless you are otherwise itemizing and have significant costs associated with the car, it may not pay to claim employee business expenses.

Incidentally, all of this presumes that 100 percent of the car's use is for business. If a percentage of the car's use is personal, you must reduce all of these deductions by that percentage.

-- Posted: Feb. 19, 2002

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See Also
Getting the most from itemized deductions
Deducting unreimbursed employee expenses

Business use of your car may be deductible

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