Do you day dream about tracking vehicle mileage and the associated expenditures?
Of course not! However, if asked your interest in maximizing tax savings, your answer might be different. Do you travel from one place of work to another, to a client’s place of business, to business meetings or continuing education classes that are ordinary and necessary? If yes, tax deductions may apply whether your vehicle is company or personally owned.
The IRS allows you to choose between two methods when calculating deductible expenses: actual vehicle expenses or standard mileage rate.
Actual Vehicle Expenses Method
This method is primarily used for company-owned vehicles. With this method, the taxpayer identifies all business mileage and acceptable expenses. Acceptable expenses might include depreciation, lease payments, registration fees, licenses, fuel, insurance, repairs, oil, garage rent, tires, tolls and parking fees. Generally, the Standard Mileage Rate is not available for company-owned vehicles. Aside from expenses, there could be tax credits available such as those related to alternative fuel vehicles. However, due to IRS regulations on eligibility and certain credits expiring, it is best to consult with a CPA to maximize available incentives.
Keep all receipts, invoices, and any other documentation that prove expenses were incurred. A mileage log is needed to determine miles incurred for business purposes. Automated apps such as MileIQ can be helpful with documentation. Whether manual or automated, document business mileage as well as the vehicle’s total annual miles (business & personal) so that the percentage of business-related expenses can be easily calculated. Two suggestions: one, every December 31 or January 1 record the vehicle’s odometer reading; two, have a routine to remember to record every business-related trip’s beginning and ending mileage. If manually documenting, keeping a small notebook for annual mileage record-keeping is practical.
Standard Mileage Rate
This method is most commonly used for personally-owned vehicles used for business purposes, whether self-employed or employed by someone else. When a taxpayer chooses to use this method, they are not allowed to deduct actual expenses like the ones listed above (other than parking fees and tolls). Instead, total annual business miles are multiplied by an IRS standard rate and allowed as a deduction. Each year the standard mileage rate is potentially adjusted (2017 rate is 53.5 cents per mile), so review this annually.
Most employers reimburse for business miles incurred. If reimbursed at the IRS rate, the employee may not claim any mileage deduction; however, if not compensated at the full IRS rate, you may be able to claim unreimbursed mileage. The Standard Mileage Rate is easier to document and provides a generous reimbursement (allowing for insurance, maintenance fees, licenses, etc.), thus making it the most common method.
Refer to Record Keeping identified above. However, with this methodology, it is important to also include destination and purpose along with each mileage record logged.
Contact JPS if you have any questions about choosing the best method,
record-keeping, depreciation options or tax incentives available.
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