Ask the tax adviser
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?
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
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.
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