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Mileage allowances v stipend and potential tax issues

My business is a startup in US; I am UK based with good UK tax knowledge but not the intricacies of US so I want to try and make sure not digging unnecessary holes with the IRS. We have a US Sales team on a car allowance (monthly fixed) plus a mileage rate paid per business mile travelled (well below IRS rate as we pay an auto allowance). The mileage is then claimed monthly via expenses detailing date / miles /location and reason. My sales team have an issue in that the recording of mileage is time consuming and deflecting from key role (selling) and is unnecessarily burdensome. So looking at options such as (1) monthly fixed stipend for mileage or (2) increase the auto allowance to a higher fixed amount per month (NOTE - neither 1 or 2 will require mileage reports from the sales team) OR (3) simple claim per month from sales team of business miles driven without all the detail of when / where / why. My concern is that in changing I create tax issues for the company and possible tax issues for the individual? Appreciate input on experience here with regard to policies seen in use and tax consequences of change

Answers

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

Anon,

Please see my answer on this thread.... https://www.proformative.com/questions/car-travel-allowances#comment-27715

I am sure a lot of folks will chime in with options and recommendations but I think the higher perspective is IMHO, we are twisting ourselves into knots. In your case, why the need for a two tiered system? Why the fixed portion and what are it's effects to the employee and the company?

The bottom questions are....What are you trying to accomplish? and are there simpler ways to do it?

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Not disagreeing with Emerson, but to your statement of "My sales team have an issue in that the recording of mileage is time consuming..."

I find that statement shows that they are either lazy (there are so many smartphone apps that can tie into a corporate expense report system that are truly inexpensive) or trying to be dishonest.

I have been traveling often. It takes a few minutes for me to enter in expenses (in my application) that my expense reports are the best and simplest to enter into my client's accounting system.

Regardless of which system you use (see Emerson's comment), don't you want to know what your US Sales team is up to?

Anonymous
(Chief Financial Officer) |

Overriding concern is whether this is an "accountable plan" to be deductible for the IRS. If your sales folks refuse to account then it becomes additional taxable income. they will come around..

Topic Expert
Jim Quinlan
Title: CFO, Managing Director
Company: Trinity Group, BlueGold, Genergy, Wellco..
LinkedIn Profile
(CFO, Managing Director, Trinity Group, BlueGold, Genergy, Wellcount) |

We have not reviewed ours in a while, but, from recollection, tax rules do not require the "when and where," just odometer readings or maybe just miles per day, and a certification that such miles were for business purpose.

As the IRS rate is 50+ cents per mile, you could do away with the auto allowance (which is taxable income) and just do a reimbursement at the higher IRS rate and, perhaps, make it work better for them.

Their purpose is to sell, a rather vital function, so, making them happy should make everyone happy.

Cheers!

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