As a small business owner you might spend a good amount of time in your vehicle for business purposes. Did you know that business use of your vehicle can be a deductible expense? You have two options to choose between – the IRS standard mileage rate or actual vehicle expenses. Tracking actual vehicle expenses requires a bit more effort, but may result in a bigger deduction if you have a new vehicle. The standard mileage rate requires that you have established a home office – as a result, the miles you drive are considered business travel and not commuting miles. A word to the wise…choose one or the other. Deducting both on your tax return will bring the IRS knocking!
Actual vehicle expenses may include the lease cost or car payments, auto insurance, fuel and service costs. Be sure to track your business vs. personal use of the vehicle; and deduct only the business use percentage of actual expenses. The standard mileage deduction is calculated by multiplying your business miles driven by the IRS standard mileage rate (which changes annually). Not only are miles driven to meetings/parties with clients, customers and hosts considered business use of your vehicle; but trips to the post office, bank and office supply store may count as business miles driven as well. These miles could add up to a significant deductible expense for your business!
While you might be tempted to print out the mapping document you used to find your hosts’ house, it is better to keep track of your business trips with a mileage and expense log. Whether you are using an app on your smartphone, or you keep a notebook in your vehicle – make sure that you take note of a few things for each and every business trip you take: date, destination, business purpose, starting and ending odometer readings, and any expenses paid (tolls, parking fees, etc.). Yes, writing down an odometer number at the beginning and end of your trip is necessary. We get that question a lot. You’d like to ensure those miles stay deductible in the event you are audited, right? If you keep thorough records you’ll have nothing to worry about.