What expense category is Toll Expenses?

Toll expenses – fees paid for using highways, bridges, tunnels, and ferries – are common for businesses whose employees or owners travel by vehicle for work-related purposes. For accountants and Small to Medium-sized Business (SMB) owners, understanding how to categorize and deduct these tolls is essential for accurate expense management and tax reporting.

This guide will cover the toll expenses category, important considerations for their classification, common examples, the tax implications as per IRS guidelines, and how Fyle can assist in automating the tracking of these transportation costs.

Toll Expenses Category

Toll expenses are costs incurred for the right to travel on a specific roadway, bridge, tunnel, or waterway that requires a fee. For business accounting purposes, these expenses are generally considered part of the operational costs related to transportation or travel. They can be categorized as:

• Travel Expenses: If the tolls are incurred during business travel away from home overnight.
• Car and Truck Expenses or Vehicle Operating Expenses: For tolls incurred during local business transportation.
• A specific "Tolls" sub-category: Many businesses create a dedicated sub-account for tolls under their broader travel or vehicle expense categories for more granular tracking.

Regardless of the specific account name, tolls paid for legitimate business purposes are recognized as a cost of conducting business.

Some Important Considerations While Classifying Toll Expenses

Business Purpose is Essential

The primary factor for deductibility is that the toll must have been incurred while on a trip directly related to conducting your trade or business. Personal trips, even if made in a company vehicle, do not qualify.

Commuting Tolls are Generally Non-Deductible

Tolls paid during your regular commute between your home and your main or regular place of work are considered personal commuting expenses and are typically not deductible.

Method of Claiming Vehicle Expenses

The way you deduct other vehicle expenses impacts how you handle tolls:

• Standard Mileage Rate: If you use the IRS standard mileage rate to deduct your vehicle expenses, you can still deduct business-related tolls separately. These are not included in the standard mileage rate.
• Actual Expense Method: If you deduct actual vehicle expenses (like gas, oil, repairs, insurance, depreciation), then business-related tolls are one of the itemized actual costs you can deduct.

Employee Reimbursements

If your business reimburses employees for tolls incurred during business travel, these reimbursements should be handled under an accountable plan to be non-taxable to the employee and deductible by the business. An accountable plan requires substantiation of expenses and return of any excess allowance.

Recordkeeping

Proper documentation is key. While obtaining a receipt for every individual cash toll can be impractical, good records are still necessary. Keep a log of business trips showing the date, destination, mileage, and business purpose. Statements from electronic toll collection systems (like E-ZPass, FasTrak, or SunPass) or credit card statements itemizing toll charges are excellent supporting documents. For transportation expenses where a receipt isn't readily available, other evidence can be sufficient if it proves the elements of the expense.

Examples of Toll Expenses

Deductible business-related toll expenses can include:

• Fees paid at toll plazas on highways, expressways, bridges, or tunnels while driving to a client meeting.
• Charges incurred from electronic toll transponders for travel between different company work sites or to a temporary work location.
• Ferry tolls for transporting a business vehicle and its occupants for a business purpose.
• Tolls paid by a delivery van or truck while making business deliveries.
• Tolls incurred when traveling to attend a business conference or trade show away from your tax home.

Tax Implications of Toll Expenses

Deductibility

Tolls incurred for ordinary and necessary business travel or transportation are deductible business expenses.

Interaction with Vehicle Expense Methods

• Standard Mileage Rate: If you use the standard mileage rate for your vehicle, you deduct your business mileage at the prescribed rate and then deduct actual business-related tolls and parking fees separately.
• Actual Expense Method: If you use the actual expense method for your vehicle, tolls are one of the specific operating costs you can claim, along with gas, repairs, insurance, depreciation, etc..

Non-Deductible Tolls

Tolls paid for personal trips, including the daily commute between your home and your regular place of work, are not deductible.

Substantiation for Tax Purposes

You must be able to prove that the tolls were business-related. The IRS requires records that substantiate the amount, date, place (e.g., toll road name or location), and the business purpose of the trip for which the toll was paid. Electronic toll statements often provide excellent documentation.

Reporting on Tax Forms

• For sole proprietors, deductible tolls are typically included as part of "Car and truck expenses" on Line 9 of Schedule C (Form 1040). If using the standard mileage rate, tolls are separately accounted for and added to the deduction. Publication 334, Chapter 8, directs to include parking fees and tolls with the standard mileage rate.
• For employees who can deduct unreimbursed business expenses (such as Armed Forces reservists, qualified performing artists, fee-basis state or local government officials), tolls would be included on Form 2106, Employee Business Expenses.

How Fyle Can Automate Expense Tracking for Toll Expenses

Manually tracking numerous small toll charges, collecting receipts or statements, and allocating them to business trips can be a significant administrative task. Fyle's expense management platform simplifies and automates this:

Real-Time Credit Card Feeds

If tolls are paid using a linked corporate credit card or a business card linked to an electronic toll transponder account, Fyle captures these transactions automatically as they occur, providing an immediate record.

Effortless Documentation

• Employees can easily capture images of toll receipts using the Fyle mobile app.
• Electronic statements from toll agencies (e.g., PDF E-ZPass statements) can be directly uploaded or forwarded from email (like Gmail or Outlook) to Fyle, where they can be attached to the relevant expense entries.

Automatic Categorization

Fyle can be configured to automatically categorize toll transactions to the appropriate expense account (e.g., "Tolls," "Travel Expenses," or "Vehicle Operating Costs"), reducing manual coding errors.

Project or Client-Based Allocation

If toll expenses are incurred for specific client visits or projects, Fyle enables users to allocate these costs accordingly, providing better insights for project costing or client billing where applicable.

Automated Reconciliation

Fyle helps match toll transactions from card feeds with any submitted documentation, streamlining the reconciliation process.

Seamless Accounting Integration

Fyle offers robust, two-way integrations with leading accounting software such as QuickBooks Online, QuickBooks Desktop, Xero, NetSuite, and Sage Intacct. This ensures that accurately categorized and documented toll expenses are automatically synced to your general ledger, keeping your financial records up-to-date and saving significant manual data entry.

By leveraging Fyle, businesses can ensure that toll expenses are accurately captured, documented, and reported with minimal effort, enhancing compliance and providing clear visibility into transportation costs.