The Tax-Free Car Allowance is a reimbursement program for employees who drive their personal vehicle for work. It is easy and tax-efficient!
Save drivers a week of work per year with a GPS app
Driving for work tax-free means keeping IRS-compliant mileage logs. Doing so is time-consuming, though, so you should use a GPS tracking app.
What is a GPS mileage app?
A GPS mileage tracker is a way for sales reps on reimbursement programs to justify their business mileage. It is very important to justify business mileage because it means a sales rep’s reimbursement can be paid totally tax-free.
There are two kinds of car allowances in this world, taxable and non-taxable. Car allowances are taxed when they are not substantiated as legitimate business expenses. A lot can be lost to tax on car allowances—as much as 30%, sometimes more depending on your state and local taxes.
The IRS allows car allowances to be paid tax-free, however. They require employees to adequately account for their business mileage, to prove that their deductible expenses were actually incurred in the course of business.
Mileage tracking software is the easiest way to prove these deductibles, bar none. We will get to the old method for mileage expense justification later in this article, but trust me, it is a nuisance.
How does GPS tracking software work?
GPS geolocation works by connecting three things: GPS satellites, ground radar stations, and receivers like the one in your phone. There are more than 30 GPS satellites orbiting the earth. They are able to pinpoint your location very accurately—”pinpoint” is not an overly generous description of their accuracy: the best receivers can identify your whereabouts within inches.
Once a GPS app knows your location, it simply has to read a tight series of your locations, calculate a start and stop point for your journey, and store that information for review. In other words, mileage tracking reads when you begin to move, when you stop moving, and how far you went along the exact route you took.
How is tracking data used in mileage reimbursement?
Once the data has been gathered, sales reps will be reimbursed per mile driven. The exact value of the reimbursement will depend on a variety of factors, but all tax-free reimbursement programs have some per-mile reimbursement rate.
The only business vehicle program that does not have a per-mile rate is a taxable car allowance, which is just a lump sum paid to field sales representatives regardless of where or how much they drive.
If you are on a Cents per Mile (“CPM”) program, you will be reimbursed at the IRS standard rate, which is, in 2022, 58.5¢ per mile. This program is simple, but has major drawbacks, including under-reimbursing low-mileage drivers, and being highly inefficient for high-mileage drivers.
If you are on a Fixed and Variable Rate (“FAVR”) program, you will receive a fixed reimbursement for fixed expenses like depreciation and insurance, and a variable reimbursement that directly corresponds to the miles you have driven in a given month.
A Tax-Free Car Allowance (“TFCA”) program is a kind of FAVR program, so it has the same characteristics.
So, how does a tracking app save drivers a week of work per year?
By not wasting their time on manual mileage logging!
The IRS, as I have said, requires that certain information be gathered in order to substantiate mileage claims. Manual mileage logs are time-consuming. How time-consuming? Well, in order to understand how they can take so much time, take a look at all the information that the IRS needs from you:Yep, in order for your reimbursement to be justified, the IRS wants you to write down:
- The date of the business trip
- The destination
- The business purpose of the trip
- The starting odometer reading
- The ending odometer reading
- The total miles driven on the trip
- The expenses incurred during the trip
- The value of said expenses
Naturally, it takes a few minutes to write those things down. You might say, well, it seems like it would take a few minutes to write all that down, but how could that take an entire week every year?
Well, it takes about 3.2 minutes to record all of that information per trip. Multiply that by the 3 business calls the average salesperson takes per day for a total of 9.6 minutes of mileage logging per day. There were 250 workdays in the US in 2021. 9.6 minutes times 250 is 2,400 minutes per year, which is 40 hours. And there you have it: those 3.2 minutes per trip end up costing drivers an entire work week, every year.
Let us give them back their time!
How can a GPS tracking app help?
Gathering the right information.
Mileage apps eliminate the need for manual mileage logging entirely. The right tracking app will record every bit of information the IRS deems necessary to substantiate valid business travel.
It is extremely important that this information be not only gathered but also stored. Our app works in tandem with our cloud software service in order to properly store information. This information is not just an insurance policy against possible audits. It is also a valuable resource for companies and drivers to help understand their driving programs and habits.
By studying the routes they have taken in the past, the driver may learn efficiencies in their customer visits. The "traveling salesman problem" is a math problem in which you have to determine the shortest route between multiple destination points. Perhaps some mathematically-inclined drivers out there would enjoy, with the help of their stored trips, route optimization to discover faster avenues to visit a series of clients.
Organizational efficiencies can be discovered as well through analysis of the location data Cardata makes available to clients. Business vehicle programs are complex undertakings, and having access to sales analytics can dramatically improve a company's logistics. A GPS tracking solution is not just tax-efficient, it is a means of uncovering organizational efficiency.
Set it and forget it.
Cardata Mobile, Cardata’s mileage tracker, only requires a couple of things to be set up before functioning entirely on its own.
Besides the setup of the native app controls, the app just needs to be told your home address and your office address, so that it can exclude your commute from your daily trips.
This is because the IRS does not consider commuting a justified business expense. I suppose the IRS thinks you can just live at the office!
Why can I not just use Google Maps?
You could be taxed if you use this method. Google Maps does not store the actual route that you took—it just provides information that you can use for trip planning, i.e. it suggests the best route from point A to point B. Since the actual route you took is not stored, the IRS might not consider this a justified expense.
If you use Google Maps, you then have to copy and paste the link to your route to some other storage location, for example, an Excel spreadsheet. This was actually the method I used when I was a delivery driver. I would save the links to all my maps on a spreadsheet and submit them to my boss for reimbursement. This system was slightly more efficient than keeping a manual mileage log, but still required a substantial amount of work on my part per trip. I would have to generate a link from Google Maps, copy and paste it to my document, describe the trip in another field, and submit it. I did not enjoy this process, and would much rather have used a mileage app, had my employer provided me with one!
And I may have inadvertently left myself open to taxation. If the IRS had looked at my mileage log, they would have been unable to tell whether I had actually driven the miles I said I did. I got lucky and was not audited that year, but I do not advise anyone to tempt fate.
A mileage app is not a tool for employers to surveil their employees. Employers and the IRS need to know what mileage is being driven for business purposes, but where a sales rep goes on his own time is up to him.
Our app has two features that guarantee privacy.
- Cardata Mobile allows for trips to be classified as “personal,” in which case these trips are invisible to the company.
- Sales reps are able to set a schedule in Cardata Mobile, outside of which no mileage is logged. So, if you go on your first customer visit at 9 AM, and stop at 5 PM, you can set your schedule to start and stop at those times. Trips taken between 5:01 PM and 8:59 AM the following morning will not be logged, even if the tracker is active.
Your drivers can literally save a week of work per year just by installing and using an app like Cardata Mobile. Enterprise clients like Coke and McDonald’s are already using Cardata to power their tax-free vehicle reimbursements. If you would like to discuss implementing this IRS-compliant solution, schedule a software demo. We are eager to save your team time and money.