How to Measure Vehicle Expenses

At the foundation of your business vehicle program it is extremely important to determine accurate vehicle expenses. This allows for the fair reimbursement of a driver’s business related driving expenses.  In order to provide fair and accurate reimbursement amounts, there are several vehicle expenses that need to be taken into consideration.

Vehicle Choice

At the foundation of any solid reimbursement program is the determination of the standard vehicle. Choosing a vehicle with a certain engine size facilitates a look into fuel economy and environmental costs, while a vehicle’s weight can impact title and license fees in certain states. Above all, the choice of vehicle has a capital cost that is the initiating factor for establishing the reimbursement amount.

A good way to calculate the expense is that every $1,000 in capital cost impacts the monthly reimbursement from $10 to $15.

Fixed Expenses

The fixed expenses reflect the cost required to have a vehicle available for business use. This would include the vehicle purchase price and depreciation, along with the license plates and insurance, both of which are legally required to operate the vehicle. The costs calculated here are in dollars per month.

Along with these expenses, you’ll need to determine your business use percentage, also known as the BUP. As the name implies business use percentage is used to reflect the percentage of vehicle usage that can be directly attributed to business purposes. A good starting point in IRS plans is 71.4% based on five days out of seven.

Variable Expenses

In addition to the monthly fixed expenses, it is also necessary to consider expense amounts that may change from month to month. These monthly variable expenses will include gas, plus mileage and repair.

Location Matters

Another thing to remember is that the ideal reimbursement program takes the driver’s location into account when looking at both fixed and variable expenses. With things like insurance and gas differing vastly from state to state and even city to city, opting for flat rate reimbursement will either underpay or overpay some employees. However fair VRPs, such as those offered by CarData, always take location into account and reimburse accordingly.

If you would like to receive more information regarding vehicle reimbursement programs or would simply like to learn more about CarData’s services, please visit our learning center https://stage5.cardataconsultants.com/our-solutions/vehicle-reimbursement-program-management/ or contact CarData by phone at 1-866-550-5188 or via email to info@cardataconsultants.com.