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.
The thing is, business mileage deductions aren’t that complicated. And, when done correctly, your could even end up with a substantial deduction from your taxes owed.
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.
In 2017, you’re allowed to claim 53.5 cents per business mile on your annual return, which is down from 54 cents in 2016.
There’s no limit to the amount of mileage that can be claimed on your taxes, but you must follow the strict rules established by the IRS and keep accurate records – specifically a mileage log.
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
If you work primarily from home, any business-related driving is deductible. And, if you do have an office outside of your home, you can deduct commuting to a temporary work location.
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.
Besides the miles that you drive, don’t forget that you can deduct parking fees and tolls as well. So make sure that you hold onto those receipts.
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.
If you use the standard mileage rate, you must own or lease the vehicle and you take a preset deduction for every mile you drive. For example, if you drove 3,000 miles for business purposes, you’d be able to claim $1,605 as a deduction on your taxable income.
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.”
If you use the actual expense method, you must keep track of what it costs you to operate your vehicle. This includes maintenance, gas, oil, tires, instance, registration fees, licenses, and depreciation. After that, you can record what portion of the overall expenses actually applies to business use.
For example, if your vehicle-related expenses equal $5,000 and 50% 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.
When it’s time to claim your business mileage for work on your taxes, you’ll need an itemized deduction and will use Form Schedule C, if you’re sole proprietor.
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.
However, If you use the actual expense method and claim depreciation, you will have to complete Part V of Form 4562.
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
- The purpose of the trip
- Your vehicle’s starting mileage
- Your vehicle’s ending mileage
- Tolls or costs related to the business trip
The old pen and paper method is acceptable. Just jot down the information listed above in a notebook and keep it in your glove compartment.
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.
Thankfully, there iOS and Android apps that use GPS tracking to capture every mile that you drive. Additionally, these apps allow you to classify the purpose of the trip as business, personal, medical, charity or another custom category.
Recommended mileage tracking apps are:
- Mileage Expense Log (iOS)
- TripLog (Android, iOS)
- MileIQ (Android, iOS)
- Stride Drive (Android, iOS)
- QuickBooks Self-Employed (Android, iOS)
Regardless of whether you use a notebook or an app, also make sure that you have all the bases covered in case you’re ever documented.
Scan and organize all of your travel expenses with apps like Shoeboxed or NeatReceipts Mobile Scanner and Digital Filing System, as well as using Google
Calendar to note when you traveled for business, like meeting a client for coffee or leaving for the airport.
Tracking all of these information may seem tedious, but being organized and detailed will make filing taxes much easier and bail you out if you’re ever audited.
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:
1. Be smart when purchasing a new car.
Look for a practical vehicle that meets your needs and has good gas mileage. Never purchase credit life or credit disability insurance through your car dealer.
Be weary of service contracts or extended warranties.
2. Keep your vehicle properly tuned.
Change the oil and oil filter every 3,000 miles, check your air filter monthly, invest in steel-belted radial tires, balance your tires annually, and check fluid levels frequently.
3. Be wise at the pump.
Unless you car has a high-performance engine, use less expensive gas instead of premium. Also, self-serve gas is typically cheaper than full service and avoid “topping off the tank.”
4. Getting from Point A to Point B.
Consider carpooling or public transportation if your commute to work. If you do drive, always accelerate gently and avoid driving too fast or slow.
This will save gas. Don’t idle your vehicle to warm it. Bundle errands together so that you’re not backtracking.
5. Lower your car insurance.
Shop around for insurance in order to find the best rates. If you want to stick with your insurance company, consider raising the deductible on your auto collision insurance.
Bundling your auto and homeowner’s insurance under one policy will lower your costs. Avoid speeding or moving violations. Notifying your insurance company of the safety features that may qualify you for discounts.
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% 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.