Read these guidelines to make sure your staff and volunteers are properly recording their expenses.
I encourage all church leaders to learn as much as they can about mileage reimbursement. Having this knowledge is useful when calculating the deductible costs for an individual who operates his or her vehicle for business, charitable, medical or moving purposes.
Every year the IRS changes their rates for mileage reimbursement based on its prediction of the cost of owning and maintaining a car. Because these rates change every year, it is essential to stay current for every update. This article will lay out the most updated IRS changes and will focus on how your church or ministry can properly reimburse your staff and volunteers for the miles they drive for church purposes.
With that in mind, let’s get started.
IRS UPDATES TO MILEAGE RATES
Beginning on January 1, 2019, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) are:
• 58 cents per mile driven for business use,
• 20 cents per mile driven for medical or moving purposes, and
• 14 cents per mile driven in service of charitable organizations.
(For further details please see https://www.irs.gov/newsroom/irs-issues-standard-mileage-rates-for-2019)
If you have kept track of last year’s mileage, you will notice that the amount per mile for business use has increased. This is good news for staff and board members, who can be reimbursed using that rate. This takes us to the next question.
How can I calculate mileage reimbursement?
There are two general methods that can be used to reimburse an employee or volunteer for the mileage he or she drives for church purposes: The actual expense method and the standard mileage rate method.
Actual Expense Method
Of the two methods used for mileage reimbursement, the actual expense method is the most burdensome to use when a person needs reimbursement. As stated in the name, an individual can deduct the actual cost of using his or her vehicle, plus depreciation, for business or charitable purposes.
As you can guess, this method requires more record-keeping than the standard mileage rate method; however, it can result in a larger deduction for the driver.
If you were to choose this method to reimburse your church employees or volunteers, then they are responsible to keep track of all costs incurred for their vehicle each time they use it for church purposes.
Below are some items that the employee or volunteer must keep track of:
* Gas and oil
* Repairs and maintenance
* Car repair tools
* Registration fees
* Depreciation of the vehicle and improvements
* Towing charges
* Car washes
Here is an example of how the actual expense method works:
Chaplain Marc is a church chaplain who drives his car 10,000 miles during the year. He also spent $7,000 on car expenses. Of the total miles driven, 5,000 miles were attributed to his chaplaincy work. He visited the homes of parishioners, prayed for the sick, served the homeless and ministered to those in prison. Chaplain Marc can claim 50% (5,000 ÷ 10,000) of the cost of operating his car as a business expense for his work as a chaplain. Of the $7,000 spent on car expenses, $3,500 may be deducted for mileage reimbursement.
Standard Mileage Rate Method
The most common method for tracking mileage reimbursement is the standard mileage rate method. The requirements for this method are less rigorous, and many churches that use our bookkeeping service have found that this method is an easier process for both the church and individual requesting reimbursement.
The standard mileage rate method requires that the driver keep track of how many miles he or she drives for church purposes, not the actual expenses of the vehicle as in the last method. In addition to keeping track of the mileage, the individual should also keep track of the following:
1. The date that the miles were driven
2. Destination to which the person drove
3. The purpose for which the miles were driven
Now, you may be wondering, what about travel expenses? Can these be reimbursed as well? The answer is yes, but there is a way to properly document these expenses. Let’s take a look.
TRAVEL EXPENSE REIMBURSEMENT
Reimbursements received by an employee who travels on business outside of the area of his or her home are tax-free as long as they are properly documented.
Travel expenses that can be reimbursed include the following:
1. Costs to travel to and from the church office to the destination when using a method other than your personal vehicle. Remember: Using your personal vehicle would be reimbursed via mileage reimbursement.
2. Transportation costs while at the business destination.
3. Lodging, meals and incidental expenses incurred while out-of-town for business purposes.
Cleaning, laundry and other miscellaneous expenses incurred while out-of-town for business purposes.
In order for travel expenses to be reimbursable, section 162(a)(2) states that the travel must be “temporary and be substantially longer than an ordinary day’s work, requiring an overnight stay or substantial sleep or rest.”
This concept is important. Travel expenses such as meals and lodging cannot be reimbursed unless the individual is at the destination for more than one day.
This article originally appeared on StartChurch.com and is reposted here by permission.