If you drive as part of your work, your vehicle could be a tax savings for you come April.
The 2017 per-mile rate is 53.5 cents for each business mile driven. If you have a small business, work in sales, or occasionally use your personal auto for anything work-related, it could really add up.
What you can’t deduct are the miles you drive from home to your primary business location as that is considered commuting and a personal expense. Even if you make business calls or have advertising on your vehicle that mileage is still considered commuting and personal.
What does qualify as deductible business mileage?
· If you are self-employed and you have a qualified home office (the principal place of business is in your home) your travel to business meetings, client visits and that trip to the office supply store would all qualify as business mileage, even though you are leaving from your home. This mileage is not considered commuting because your home is where you conduct all your business.
· If you have a regular W2 job, and you have unreimbursed mileage, or your employer pays you a set allowance each month towards mileage, meals, etc. but does not require you to substantiate those expenses (non-accountable plan), make sure you keep the documentation anyway. Any unsubstantiated allowance paid by your employer will be included in your W2 income so maintaining records for those deductible expenses could be a tax savings for you.
· If your vehicle is used 100 percent for business and there is no personal use—you still must keep a mileage log. If you are using your vehicle for both personal and business your deductible expenses are pro-rated based on percentage of use.
You have two options for deducting vehicle expenses. You can use your actual expenses (parking fees, tolls, interest on vehicle loan, vehicle registration fees, lease and rental expenses, insurance, fuel and gasoline, repairs including oil changes, tires and other routine maintenance and depreciation) or the standard mileage rate to calculate the deduction. Parking fees and tolls can be deducted in addition to the standard mileage rate if you choose to go with that method but no other actual expenses. You can use whichever deduction method is best for your tax situation.
A word of caution… if the IRS audits your return, and you do not have a mileage log and corresponding records, your vehicle deduction could very well be disallowed. If the deduction is disallowed you will be stuck having to pay back the deduction either partially or in full plus penalties and interest. If you find yourself in an audit your reported mileage will have to be substantiated. The simplest way to do that is to have your oil changed at the end of each year. The odometer reading is usually printed on the receipt and is acceptable verification for the IRS. File that receipt along with your tax papers and mileage log each year.
Before the ball drops to kick off 2018, consider scheduling that oil change and jot down your odometer reading. Next April you will likely be glad you did.
This material has been prepared for informational purposes only and it is not intended to provide, and should not be relied on for tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
Karen Wiseman, EA
Wiseman Tax & Bookkeeping