Charging for Car Mileage 3

[RichRook]

Working with a company that has (in my opinion) an odd practice where travel is concerned. Not a major issue - and nothing I really find that offensive, but I would classify it as a bit odd and wonder if I'm alone or if this is common practice. Here it is:

A company has a policy that when the travel distance is over a certain amount - I think about 250 miles or so - that the employee rents a car for the trip. They have a deal with the rental agency down the street and it's a pretty seamless process. If the expenses are billable, then the accountant asks to find out what the actual travel distance is and then bills the IRS rate for mileage - thus pocketing $50 to maybe a couple hundred.

So poll time . . No issue or a little sketchy. The client would be responsible for that amount anyway so maybe it's no problem. The company is about dozen employees

Thanks

 

[Ron]

Not a big deal. You can do either way...charge directly for the rental with a markup or charge mileage and pocket the difference if there is any. The IRS doesn't care how you do it as long as any income that's developed is reported! zdas04 is correct.

 

[TenPenny]

I don't understand the issue.

The company has a policy where, for trips over 250miles, they bill the client at a certain rate per mile, no matter what the cost of the car is.

What's the issue?

 

[zdas04]

The issue seems to be that you can rent a vehicle for $50/day unlimited mileage and charge the client 250 miles times $0.555/mile = $138.75, you making nearly $90 "profit" (even if it costs you a bit for the administrative work of booking the car and paying the invoice). I don't know why this is an issue, but it seems to be a big deal in some folks minds.

David Simpson, PE
MuleShoe Engineering

Law is the common force organized to act as an obstacle of injustice Frédéric Bastiat

 

[LionelHutz]

It is not an issue, fraud or misrepresentation. You tell the client what you're going to bill for travel and then you bill it.

Our service department bills 52 cents per km plus $100/hour when traveling during work hours or $150/hour when traveling after hours. It doesn't matter if it's a personal car, company owned or rental. We give the customer the rates and they can chose to pay or not. The accountant has the job of sorting it out on the back end as to who gets payed what part of the income.

We've had $3+ traveling bills to get to mines in remote northern locations. It's just a cost of doing business there for the mine. We told them what it would cost and they agreed so we billed what they agreed to. If they didn't like it they could have asked for something different - they didn't.

 

[JohnRBaker]

Our youngest son used to have his own IT consulting business. He confined himself to just taking customers in the greater Los Angeles area (LA, Orange and San Diego counties) but since his business was 100% at a customer's site (this was before the remote accessing tools were as good as they are now) he had to charge for the cost of travel with all of his customers. What he did was with each new customer he would establish up-front the amount that would be included for travel each time he was called to make a visit based on the miles from his home and back (he worked out of his apartment in Irvine, which was just about the exact center of his 'area of service'). Often he would be making two or more calls in a single day but yet each customer was still charged the 'flat rate' that they had agreed to the first time he did business with them. And while some might say that he was not giving his customers a break if for example he made three calls in San Diego on the same day, from his point of view, which you couldn't really argue with, what if he had been called to San Diego on three separate days? Why should the luck-of-the-draw effect the costs incurred by a company for a 'contractually' agreed-to service call?

BTW, he's now working as a full-time IT director at a local high-tech company but he still does an occasional after-hours/weekend job for some of his old customers. Of course, now that he's only doing these one-at-a-time, there's no longer any 'ethical' questions as to whether the milage charges are fair or not.

John R. Baker, P.E.
Product 'Evangelist'
Product Engineering Software
Siemens PLM Software Inc.
Industry Sector
Cypress, CA
Siemens PLM:
UG/NX Museum:

To an Engineer, the glass is twice as big as it needs to be.

 

[MacGyverS2000]

If I purchase flash drives for $1 and sell them to another person for $20, I made a profit. Is that wrong?

I hold some in my hand for 5 minutes each, then sell them for $50 as a "special edition". Is that wrong?

Why is making a profit wrong? You tell the client how much they will be charged, the agree upon it, done deal. How much you pay for that same something is irrelevant.

Dan - Owner

http://www.Hi-TecDesigns.com

 

[moltenmetal]

Again, that' s all determined by the contract, and whether or not you'll ever get caught is determined by the audit rights in that contract.

Don't confuse fixed price (buying items for $1 and selling for $50, keeping all of the profit) with reimbursable work (being paid an hourly rate to issue purchase orders for $1 items and invoices for $50, keeping none of the profit).

We like to work fixed price whenever a scope can be agreed to- it allows us to actually get paid what our engineering is WORTH, rather than competing on rates per hour as if all engineers were interchangeable widgets with identical skill, productivity, creativity/innovativeness etc.

A fixed fee per mile is like a fixed fee per hour, or per page of photocopying etc.- unless the contract says that they will pay ONLY for travel expenses ACTUALLY incurred. Then you'd better be billing for the rental car, fuel, and the HOURS to book and return the rental, and nothing more, or you risk losing your client over a trivial amount of money. Not worth it.

 

[IRstuff]

There are a variety of contract vehicles, cost+fixed fee, cost+incentive, firm fixed price, time+material, etc. Each has a different mechanism and rationale for charges to the customer.

TTFN
faq731-376

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[ztengguy]

How can the company pay you less than the IRS rate, 0.44 because its more reasonable? How about 20% less than IRS min wage because its more reasonable?

 

[JohnRBaker]

If your company reimburses you for milage at a rate LESS than the IRS rate, you're allowed to deduct the difference from your own personal Income Taxes as an 'Unreimbursed Employee Expense', however it will be subject to a 2% threshold. That is, only amounts over 2% of your AGI, Adjusted Gross Income, will be allowed, but then there are many different expenses and costs which can be included in the general category of 'Job Expenses and Certain Miscellaneous Deductions' which when combined together is subject to this 2% threshold so take a look as you might just save yourself some taxes.

Note that I've always worked for companies who matched the IRS rates so this has never been an issue with me personally.

John R. Baker, P.E.
Product 'Evangelist'
Product Engineering Software
Siemens PLM Software Inc.
Industry Sector
Cypress, CA
Siemens PLM:
UG/NX Museum:

To an Engineer, the glass is twice as big as it needs to be.

 

[Compositepro]

The IRS milage rate merely limits how much you (or your employer, if they reimburse you) can deduct as a business expense on a tax return. I guess if your employer reimburses you less then you can claim the difference on your return.