When it comes to business tax deductions, one of the most overlooked helpers is your automobile and transportation expenses. This may be because business owners aren’t aware of this benefit or simply don’t believe it’s worth it.
The thing is, business mileage deductions aren’t that complicated. And, when done correctly, you 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 deduction that can be used to offset expenses related to the use of your personal vehicle for business purposes.
In 2017, you are allowed to claim 53.5 cents per business mile on your annual return, which is down from 54 cents in 2016.
There is no limit to the amount of mileage that can be claimed on your taxes, but you must follow strict rules set by the IRS and keep accurate records, especially a mileage log.
What is considered a business mileage deduction?
If you drive your vehicle for business purposes, you are eligible for the standard mileage deduction (53.5 cents per mile). That’s for every mile you drive for work.
However, you are not allowed to deduct travel miles. In other words, you cannot deduct your daily commute to your home office and vice versa.
Even if you meet a client at your office, this is considered commuting and is not eligible for a mileage deductible
If you work primarily from home, all business conduct is deductible. And, if you have an office outside your home, you can deduct travel to a temporary workplace.
Confused? Here’s a deeper look at what counts as enterprise drives:
- Moving your office or workplace to a second place of business.
- Driving for business-related errands, such as picking up supplies, the bank, the post office, or getting documents notarized.
- Traveling to meet clients or suppliers 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 will last less than a year.
- Look for a job.
- Driving for medical purposes, volunteering and for certain moving-related trips.
In addition to the kilometers traveled, remember that you can also deduct parking costs and tolls. So be sure to keep these receipts.
Calculation and claim of 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 each mile you drive. For example, if you drive 3,000 miles for business purposes, you can claim $1,605 as a deduction from your taxable income.
Other rules set by the IRS regarding the standard mileage rate include:
- Do not use five or more cars at the same time, as in the case of a fleet.
- Using the straight-line method to claim capital cost allowance for the car.
- Not having claimed a deduction under section 179 on the car.
- Not having claimed the special capital cost allowance on the car.
- Not having claimed actual expenses after 1997 for a car you lease.
- Not be a rural mail carrier having received a “qualified reimbursement”.
If you use the actual expense method, you need to keep track of what it costs you to operate your vehicle. This includes maintenance, gas, oil, tires, litigation, registration fees, licenses and depreciation. After that, you can record what part of the overall spend actually applies to business use.
For example, if your vehicle expenses are $5,000 and 50% of your total mileage is considered business mileage, you can deduct $2,500 from your taxable income.
Remember that you are not allowed to use the actual expense method if you are leasing a vehicle.
If this is your first year of mileage claims, go with the standard mileage rate because it’s not as complicated as the actual expense method. You can switch between the two methods after this first year.
When it’s time to claim your business mileage for work on your taxes, you’ll need an itemized deduction and use the Schedule C form, if you’re a sole proprietor.
Along with your work miles value, you will also need to include information such as your starting odometer reading, your commute miles, and your personal non-ride miles.
However, if you use the actual expense method and claim depreciation, you will need to complete Part V of Form 4562.
Tips on Tracking Business Miles
When it comes to business mileage deductions, the IRS has strict documentation restrictions.
To avoid any problems, keep a mileage log containing the following information:
- Date of travel
- Starting point
- The purpose of the trip
- The starting mileage of your vehicle
- Final mileage of your vehicle
- Tolls or expenses related to business travel
The old pen and paper method is acceptable. Simply write down the information listed above in a notebook and keep it in your glove box.
Be sure to record this information daily. The IRS has no problem denying mileage deductions to taxpayers because their logs were incomplete, didn’t provide enough detail, or contained too many errors.
Luckily, there are iOS and Android apps that use GPS tracking to capture every mile you drive. Additionally, these apps allow you to categorize the purpose of travel as business, personal, medical, charity, or another custom category.
Recommended mileage tracking apps are:
Whether you’re using a laptop or an app, also make sure you have all the bases covered in case you’re documented.
Scan and organize all your travel expenses with apps like Shoeboxed or NeatReceipts Mobile Scanner and Digital Filing System, as well as using Google
Keep a schedule when traveling for business, such as meeting a client for coffee or leaving for the airport.
Keeping track of all this information can seem tedious, but being organized and detailed will make filing taxes a lot easier and get you out of trouble if you ever get audited.
How to save money on all your car expenses
Since you use your personal vehicle and can only claim the percentage that was used for business purposes, it is in your interest to save money on your overall car expenses.
It may be an initial investment, but you’ll end up saving money in the long run with these methods:
- Be smart when buying a new car
Look for a practical vehicle that meets your needs and has good gas mileage. Never buy life or disability insurance through your car dealership.
Beware of service contracts or extended warranties.
- Keep your vehicle 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.
Unless your car has a high performance engine, use cheaper gasoline instead of premium gasoline. Additionally, self-serve gasoline is generally less expensive than full-service and avoids “filling the tank.”
- Go from point A to point B
Consider carpooling or public transportation if you are commuting to work. If you are driving, always accelerate gently and avoid driving too fast or too slow.
This will save gas. Do not idle your vehicle to warm it up. Group the races so as not to go back.
Shop around for insurance to find the best rates. If you want to stay with your insurance company, consider increasing your auto collision insurance deductible.
Consolidating your auto and home insurance under one policy will reduce your costs. Avoid speeding tickets or traffic violations. Inform your insurance company of safety features that may qualify you for discounts.
If you want to further reduce your chances of being audited, never round up your business mileage.
No one drives exactly 17,000 miles a year. It’s a red flag for the IRS that you’re estimating your mileage instead of keeping accurate records.
Another red flag? Have exactly the same professional and personal mileage of previous years. It is highly unlikely that this will happen. It appears to the IRS again that you are estimating your mileage,
Never attempt to claim 100% of trips as business miles. The only time this would be true is if you actually have a separate vehicle that is only used for business. This would mean that it is never intended for personal use, such as going to the grocery store or taking a road trip.
Last but not least, keep good records and maximize the deductions you are entitled to. This way, you don’t pay more than you owe and you won’t have to deal with the dreaded IRS audit.
By John Rampton
The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are intended for general informational purposes only and should not be construed or construed as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or other personal finance advice. Epoch Times assumes no responsibility for the accuracy or timeliness of the information provided.