Mileage - To Deduct or Not To Deduct
Wanting the 411 on mileage deductions for your business?
Do you drive your vehicle for business tasks and wonder if you can deduct the expenses from your taxes?
Did you know that you can calculate your deduction multiple ways?
Do you have a good system in place to keep track of your business mileage versus personal on your vehicle?
One of the common questions we get asked is - what can and what cannot be deducted when it comes time to file taxes. In this blog post we are going to tackle mileage: what miles can be deducted, things to consider when claiming business mileage deductions, and two methods to calculate the deduction.
Business Mileage Deduction is a tax break offered to small business owners and self-employed entrepreneurs for claiming the miles driven on your vehicle for business related travel. If the mileage is unreimbursed to an employee, they can claim it on their taxes as part of their deductions, but as most companies reimburse employees for use of their personal to accomplish business taxes, this is a rare scenario.
What are the qualifications for this deduction per the IRS?
You cannot deduct commuting miles to and from home to work. The IRS considers this a personal expense. The IRS says, ‘You can’t deduct the costs of taking a bus, trolley, subway, or taxi, or of driving a car between your home and your main or regular place of work. These costs are personal commuting expenses. You can’t deduct commuting expenses no matter how far your home is from your regular place of work. You can’t deduct commuting expenses even if you work during the commuting trip.” Even if you are using the time driving between home and work everyday to talk to clients, the miles cannot be used in your deduction calculation.
If your primary place of business is your home, then the starting point for calculating business mileage is your home address, but you must be able to show that your home office is the primary place of business.
Here is a list of business mileage that you can include in your deduction calculations:
Miles to meet with a client
Miles to meet with your accountant or lawyer
Miles to store to buy supplies for business
Miles to temporary job sites
Miles to warehouse or storage for business inventory
Miles to bank or post office for business transactions
Miles to location to do work for client
Miles to convention center where you participate in business seminar
What are areas of policy or procedure to create when collecting support for mileage to be deducted?
Keep good documentation for business mileage in case of an IRS audit.
Keep business and personal driving expenses separate.
Keep back-up log and total miles support with your business records for the year to support the numbers used in your calculations.
Put a system in place to note at the time of the expense the date, reason and any other information to show that miles traveled are business related.
The system you use can include mileage apps on your phone or written logs, the important thing is that you keep track of miles as you use them instead of trying to piece things together at the end of the month or at the end of the year.
The two methods to calculate deduction:
Standard Mileage Deduction
(2019 rate per IRS- $0.58/mile)
Formula:
Miles driven for business X mileage rate per IRS= deduction
Example:
Miles driven for business in 2019 is 10,000
10,000 X .580= $5,800 deduction
Keep track of actual car expense related costs
Items to include in actual expenses: gas, oil, repairs, tires, insurance, registration fees, licenses, depreciation, lease permits
Formula:
Business mileage percentage X total car expenses= deduction
Business mileage percentage= business miles / total miles
Example:
Total miles driven in 2019 is 60,000. Total business miles driven in 2019 is
20,000. Total car expenses for 2019 is $6,000
Business Mileage Percentage: 20,000 / 60,000= 33%
.33 X 6,000 = $1,980 deduction
If you have any questions about what items are deductible in regards to mileage on your vehicle, or calculating your mileage deduction and which method would best benefit your business, reach out to your tax professional.
For easy reference for more information for IRS guidelines for mileage deductions please visit here and for current years mileage rate visit here.
