How to claim mileage for an employed sales person - WAY confused by the IRS explanation!?

Question

I am an employee of a greeting card company. I am paid salary, not commission. I am given a $400 a month expense check to cover office supplies, gas, phone, etc. However, with the cost of gas, this is not covering even gas. I am tempted to claim business mileage, however, I'm not sure I even can as, technically, I am given money for gas. My tax lady said that it wouldn't be worth it - as my deductions would have to be more than $10,600 (my deduction for being married on my federal taxes). I'm so confused. I'm pretty sure that I should be able to keep a log and claim business mileage, but I would hate to do all that work only to find out I don't qualify. Can anyone help me by putting this in laymans terms? Thanks a bunch!

Answer 1

The answer to your question depends on how you get your expense money.

There are two types of expense plans. An accountable plan and a non-accountable plan.

In an accountable plan you submit an expense report to your employer listing all your expenses for the period including mileage. You are also supposed to list business purpose of the expense. Once approved, you are reimbursed for your expenses. If you are given an advance, any money not spend has to be returned to the employer.

In the non accountable plan, you are given an expense allowance for all expenses. An overage does not have to be returned to the employer.

It sounds like you have the latter. If this is the case, your employer is supposed to report the expense allowance in your W-2 as it is subject to withholding of income and FICA taxes. You would then file a 2106 to report employee business expenses. This amount gets carried to your Sch A as a misc. deduction subject to 2% of AGI.

Unfortunately, many employers incorrectly report this on a 1099 MISC as non-employee compensation and the IRS looks for a Sch for the reporting of this money. Also many people fail to report this as income on their tax return.

Answer 2

You really need to talk to your employer about setting up an "accountable plan".   It will save both you and your employer on taxes.  Currently, your employer will have to add that $400/month to your gross pay on you W2...costing you FICA (social security) and income taxes.  Also costing your employer the matching portion of FICA (7.65%).

If the $400/month is not covering your expenses, the accountable plan is simple.  You would turn in mileage logs and receipts for supplies every month.  This simple action can turn what is currently an alllowance (taxable) into a reimbursement (not taxable).

Your employer does not have to reimburse you for 100% of your expenses for it to qualify as an accountable plan.  A maximum reimbursement amount can be specified as part of the plan.

IRS discusses this issue here (you can easily find it talked about other places on IRS website):

http://www.irs.gov/taxtopics/tc514.html

The others are correct:  as it is currently being handled, you would have to have a LOT more than $10,700 in expenses befofe it would make a dent in your taxes.  And it still would be a losing economic situation.

Answer 3

In order to deduct employee business expenses, you have to itemize your deductions.  On your joint tax return you get what's called a "standard deduction", and amount of your income that isn't taxed - that was $10,700 for 2007 and will be a little higher for 2008.  You have a choice of taking the standard deduction or listing your deductions - you get to subtract one or the other before your tax is calculated.  So unless your list is over the amount of the standard, you are better off subtracting the standard amount.

Answer 4

An employee can deduct unreimbursed business expenses.  However, the amount of unrembursed business expenses has to be greater than 2% of your income.  You can include mileage as part of your expenses at 50.5 cents per mile.

Example:  You earn $50,000, so 2% of this is $1,000.  Your expenses are $500 a month, and you are reimbursed $400 a month.  Your unreimbursed expenses are $100 a month.  Your unreimbursed expenses are $1,200 for the year.  However, you can deduct only $200, the excess of 2% of your AGI, on Schedule A.

However, the total Schedule A deductions must be greater than $10,700 to give you any tax benefit.

So, your tax lady was correct, unless you have lots of other deductible expenses like home mortgage, state income taxes, or medical expenses, your unreimbursed business expenses are not going to benefit you.

Answer 5

Your deduction would not have to be over $10,600.  You can log your mileage and deduct it on form 2106 (unreimbursed employee expenses) at the end of the year.