Convert a car allowance into a reimbursement program.

The difference between an allowance and a reimbursement is that a reimbursement is made for specified expenses. The executive must give the company an itemized report of his/her business driving, including mileage, tolls, parking fees and the cost of oil and gas, and receive payment either for actual costs or at a rate not exceeding the IRS allowance per mile. The payment to the executive is neither included in his income nor deducted on his return, so the 2%-of-Adjusted Gross Income limit is avoided. Many companies that say they have reimbursement programs are in fact providing allowances to their executives, because the payments made to them are not based on sufficiently itemized expense reports.