When it comes to business tax deductions, one of the most overlooked helps are your auto and transportation fees. This may be because business owners are either unaware of this benefit or just don’t believe that it’s worth the hassle.
What Is the Mileage Deduction?
In its simplest form, the mileage deduction is a tax write-off that can be used to offset the expenses of using your personal vehicle for business purposes.What’s Considered a Business Mileage Deduction?
If you drive your vehicle for business purposes, then you’re allowed to take the standard mileage deduction (53.5 cents per mile). That’s for every mile that you drive for work purposes.However, you’re not permitted to deduct commuting miles. In other words, you can not deduct your daily drive to the office from home and vice versa.
Even if you’re meeting with a client at your office, this is considered commuting and is not eligible for a mileage deductible
Confused? Here’s a Closer Look at What Are Considered Business Drives:
- Traveling from your office or work site to a second place of business.
- Driving for business-related errands, such as going to pick-up supplies, the bank, post office, or getting documents notarized.
- Traveling to meet with clients or vendors for lunch or at a conference.
- Driving to and from the airport for business trips.
- Traveling to and from odd job locations, like a side-gig.
- Driving from home to a temporary work location that you expect to last under a year.
- Looking for work.
- Driving for medical purposes, volunteering, and for certain moving-related drives.
Calculating and Claiming Business Mileage on Taxes
You have two options when claiming your business mileage deduction. The standard mileage rate as determined by the IRS, which is 53.5 cents per mile for 2017, or you can deduct your actual expenses.The Other Rules Established by the IRS in Regards to the Standard Mileage Rate Include:
- Not operating five or more cars at the same time, such as in a fleet operation.
- Using the straight-line method for claiming a depreciation deduction for the car.
- Having not claimed a Section 179 deduction on the car.
- Not having claimed the special depreciation allowance on the car.
- Having not claimed actual expenses after 1997 for a car you lease.
- Not being be a rural mail carrier who received a “qualified reimbursement.”
For example, if your vehicle-related expenses equal $5,000 and 50 percent of your total mileage qualifies as business mileage, then you can deduct $2,500 from your taxable income.
Keep in mind that you not permitted to use the actual expense method if you are leasing a vehicle.
If this is your first year claiming mileage, go with the standard mileage rate since it’s not as complicated as the actual expense method. You can switch between the two methods after that first year.
With the value of your work miles, you’ll also have to include information like starting odometer reading, your commuting miles, and your personal, non-commuting miles.
Tips on Tracking Business Miles
When it comes to business mileage deductions the IRS has strict document restrictions.To Avoid Any Problems, Keep a Mileage Log That Includes the Following Information:
- Date of the trip
- Starting point
- Destination
- The purpose of the trip
- Your vehicle’s starting mileage
- Your vehicle’s ending mileage
- Tolls or costs related to the business trip
Make sure that you log this information daily. The IRS has no problem denying taxpayers mileage deductions because their logs were either incomplete, didn’t provide sufficient details, or contained too many errors.
Recommended Mileage Tracking Apps Are:
- Mileage Expense Log (iOS)
- TripLog (Android, iOS)
- MileIQ (Android, iOS)
- Stride Drive (Android, iOS)
- QuickBooks Self-Employed (Android, iOS)
Calendar to note when you traveled for business, like meeting a client for coffee or leaving for the airport.
How to Save Money on All of Your Car Expenses
Since you’re using your personal vehicle, and you can only claim the percentage that was used for work purposes, it’s in your best interest to save money on your overall car expenses.It May Be an Investment Upfront, but You’ll End-Up Saving Money in the Long-Run Through These Methods:
- Be smart when purchasing a new car
- Keep your vehicle properly tuned
- Be wise at the pump
- Getting from Point A to Point B
- Lower your car insurance
Final Words of Advice
If you want to further decrease your chances of getting audited, never round your business mileage.No one drives exactly 17,000 miles a year. That’s a red flag to the IRS that you’re estimating your mileage instead of keeping accurate records.
Another red flag? Having the exact same business and personal mileage numbers from the previous years. That’s highly unlikely this would ever happen. It again appears to the IRS that you’re estimating your mileage,
Never attempt to claim 100 percent of trips as business miles. The only instance this would be true is if you actually do have a separate vehicle that is only used for business. This would mean it is never for personal use, like going to the grocery store or a road trip.
Finally, and most importantly, keep good records and maximize the deductions that you’re entitled to. This way you aren’t paying more than you owe and won’t have to deal with the dreaded IRS audit.
