BUSINESS MILEAGE DEDUCTIONS |
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BUSINESS MILEAGE DEDUCTION RULES |
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As a business owner, if you use your vehicle for both personal and business purposes, you CANNOT pay for fuel from your business.
You can, however, deduct the cost that is related to the business use of that vehicle. To do this, you must log/separate your business miles from personal and substantiate them with records proving the business use.
When done correctly, the business use of your personal vehicle can add up to be a substantial tax deduction. Here is how to do it:
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Stay compliance & maximize deductions |
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1) Determine which method you will use for business mileage.
The first step in calculating business mileage is determining which method to use: Standard mileage or Actual costs. You are required to use the standard mileage rate the first year you use a car, then in later years, you can choose to use either the standard rate or actual expense method.
Each has advantages and disadvantages. But both require you to track your mileage.
STANDARD MILEAGE
To use the Standard Mileage method, simply multiply your business miles by the amount per mile allotted by the IRS. To do this you will need to track all business trips, details/reason, dates, and mileage.
ACTUAL COST
The Actual cost method is based on the expenses you incur for the operation of your vehicle. It includes things like gas purchases, oil changes, tire purchases, car washes, and insurance.
However, you can only claim the percentage of expenses that apply to the business use of your vehicle. To compute this, you must know how many miles you drove for business purposes and how much you drove for personal reasons. To find the percentage of your car’s use for business, divide your total business miles by the total number of miles you drove for the year (business + personal).
- For example, if you drove 5,000 miles for your business, and your odometer indicates you drove 10,000 miles for the year, divide 5,000 by 10,000. The result is 0.5, or 50%. This is the percentage of your vehicle’s business use.
You then multiply the total of your actual expenses by this percentage to arrive at your actual expense's deduction.
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2) Meticulously maintain mileage records.
To avoid audits, penalties, and fines from the IRS it is your responsibility to keep accurate and detailed records that support your vehicle expense claims. You can do this by manually tracking this information and keeping the related receipts. You can also automate the process through apps like Everlance, MileIQ, or TripLog.
TIP: Don't fall victim to missing mileage. If you use a mileage tracker, set a reminder to open and review your app monthly. Even if you pay a fee, we’ve learned that you may have to open the app on your phone periodically to keep it working.
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3) Know what you can deduct.
Some examples of business miles that are often overlooked include trips to the post office, to visit your accountant, or to go to the bank. Additionally, if you work from home - nearly every work trip becomes deducible.
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3) Know what you cannot deduct.
While the mileage deduction is a great way to reduce taxable income - misusing the rules can result in a much bigger problem than not take the mileage in the first place.
Some examples of miles that you CANNOT deduct include:
- Commute miles. Commuting from your home to business location is never deductible.
- Mileage that does not start at your business location. If you have a physical office or business location, then mileage is only allowed IF you drive to that location first, and then to go your destination related to business. Otherwise, if you drive straight from your home to the business destination, it is NOT deductible.
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4) Stay up to date with your CFO on the Go services!
Bell Solutions can help you maximize your mileage tax deductions by submitting your business mileage each month quarter.
Got questions? Let us know!
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Bell Solutions | bellsolutions.biz
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