Fri, 30 January 2015
Are you taking full advantage of business mileage that you can deduct on your taxes?
When you use your personal vehicle for a business purpose, those miles can add up to a deduction on your tax return. Tax deductions equal money in your pocket! Many small business owners don't realize that they can deduct an expense for business miles driven with their personal car. The IRS lays out all the details in Publication 463 (which is rather lengthy and boring!) so let me fill you in on the most pertinent details! As always, if you have a complicated tax situation, it's always wise to consult with a Tax Accountant.
What counts as business mileage?
Here are some examples of business miles you may include:
Any miles you drive in your personal car for a business purpose count.
The IRS understands that when you drive your personal vehicle for a business purpose, it is costing you money in wear and tear and gasoline used. That cost to you is considered a business expense on your tax return. In order to calculate what this amount should be, the IRS has set up a standard mileage rate. It represents what you had to spend to drive each mile. The standard mileage rate is changed each year based on the price of gas and other inflation.
In 2014 the standard mileage rate was .56 and in 2015 the rate is .575. For example, if you drove 100 business miles with your personal car in 2014, 100 x .56 = $56. This represents a business expense you incurred and can be included on your tax return along with all your other business expenses.
And of course, since this is the IRS, they want you to keep careful records of the business miles you drove.
How should you track and record your business miles?
The IRS wants you to keep timely records. They prefer that you keep a log that documents any miles driven in your personal car for a business purposes. Your log should include:
Lucky for you, we've taken the guesswork out of things by creating a mileage tracker that you can stow in your glove compartment to stay on top of things.
Grab a free, printable mileage log by subscribing here!
At the end of the year, add up all of your business miles driven and multiply that by the IRS standard mileage rate.
All of your other expenses such as parking, tolls, and meters can also be added up and included as an expense on your tax return. In most cases the IRS wants you to have a receipt of every business expense. However the IRS recognizes that sometimes a receipt is unavailable. They have made an exception and still allow a deduction when receipts are not available and the transaction is less than $75. The IRS recognizes that you may not have a receipt for certain transactions such as meters or tolls, and this is why recording these expenses on your mileage log is so important. The log serves as your documentation of these expenses.
What if you didn't keep a log in 2014?
Even though the IRS prefers that you keep track of business miles in a log, the most important thing is that you can support your claim of business miles driven. In years where I failed to track miles in a log, I went back through my business bank statement and business credit cards to look for places I drove for a business purpose. If you have been keeping your business money separate from your personal accounts as is recommended, quickly looking through the records to see where you drove for a business purpose won't be hard. For example, if I used my business credit card to purchase supplies from the local craft store, I know I drove business miles to get there. If I used my business debit card at the Post Office, I know that driving to the Post Office was business miles. I can then use MapQuest or GoogleMaps to determine the round-trip miles it took for me to get to the craft store or Post Office. Although the IRS prefers a log, I feel that at least with this method I can substantiate my claim of business miles driven with the financial record to back it up. If my personal money and business money were intermixed, this would not be so easy to do.
Once you calculate your mileage expense, where should you include it on your tax return?
If you are a Sole Proprietorship (just you) and file a Schedule C, include your calculated mileage expense plus parking and tolls on line 9 of Schedule C.
Tracking your business mileage is an easy thing to do that will help you keep more money in your pocket!
Let's chat in the comments if you have any questions. Were you able to save some money on taxes this year?