One of the most overlooked aspects of a company-vehicle program is that of Personal Use.
When driving a company-provided vehicle, all the miles that are driven can be classified in one of two ways: Business Miles or Personal Miles. What’s the difference between the two? Business miles are any miles driven between two business locations (except for commuting to/from your office). Personal miles are any miles driven outside of the course of doing business.
Example) Driving from your office to a client meeting would be considered business mileage. Conversely, driving home from that meeting, or driving to a doctor’s appointment during your lunch break would be considered personal mileage.
Why is it Important to Differentiate Between Personal and Business Miles?
The reason why it is necessary to differentiate between the two types of miles is because, per the IRS, a company-provided vehicle is considered to be a fringe-benefit, and thus there is a small cost to the employee.
*Pro Tip*: We discuss the formula for calculating what an employee would owe for personal use of their company vehicle in our article entitled ‘How is the Fair Market Value of Personal Use Calculated?’, and the various methods of collection in our article entitled ‘Personal Use Charges: Methods of Collection’
Because the amount of money that an employee may owe is based upon the amount of personal miles that are driven, it’s absolutely vital that accurate mileage logs are kept. Should an employee fail to keep records of their mileage, the IRS may deem that 100% of the miles driven were for personal use. There are various methods of tracking mileage, either electronically, or by hand, but whatever method is chosen should capture a few key pieces of data. Things such as the date, beginning location, ending location, starting odometer, ending odometer, total mileage, nature of the trip, and any ancillary costs (such as tolls) should all be noted.
To eliminate any potential confusion, employers need to be sure to have a clearly defined policy when it comes to personal use. Outlined within should be rules and regulations regarding acceptable use of the vehicle, as well as procedures for accurate reporting of mileages. Doing so will eliminate potentially costly mistakes and make both employee’s and employer’s lives easier.