Did you know the IRS lets you write off your business miles on taxes? That’s right, your car can potentially lead to thousands of dollars’ worth of mileage tax deductions. But make sure you’re following the rules, or else you may be staring down the barrel of an audit.
What is the Mileage Tax Deduction?
The IRS understands there’s a cost associated with using your personal car for business reasons. That’s why it lets you deduct vehicle expenses through what’s commonly called the “mileage tax deduction.” With this write-off, you could be lowering your taxable income with every business drive.
How Much is this Deduction Worth?
For 2017, the IRS lets you deduct 53.5 cents per business mile. That may not seem like a lot, but just think about how much you drive for business. Every trip to meet a client, every drive to pick up supplies, and every trip between offices can potentially lead to a deduction.
Let’s say you drove 11,000 business miles for 2017. You could claim a deduction of $5,885 for your mileage on your tax return. Remember, this is in addition to your other eligible expenses, so it could go a long way toward lowering your taxable income and the tax bill you’re faced with.
Who Can Take the Mileage Tax Deduction?
The self-employed can typically use this deduction routinely. The use of your business vehicle is considered a business expense, and like other business expenses, the self-employed can get a deduction for it.
This applies to nearly anyone who is their own boss, including small business owners, freelancers, Uber drivers, and more. If you receive a 1099 tax form for the work you do, you can likely write off your business-related vehicle expenses.
If you’re a W2 employee, you may be able to write off your mileage. But, this is only if you itemize your deductions, and even then, you can only deduct the portion of your expenses that exceeds two percent of your Adjusted Gross Income. In many cases, it’s often better for your bottom line if you can work out a mileage reimbursement program with your employer.
What Documentation Do You Need?
Of course, the IRS isn’t just going to take your word for this deduction. You need proof of your mileage, which is commonly called a mileage log. While you don’t submit your mileage log when you claim the deduction, it’s vital to keep one to calculate the value of your write-off and to justify the deduction if it ever faces IRS scrutiny.
The IRS also wants you to keep a “contemporaneous” mileage log, which means it’s recorded shortly after the event occurred. In terms of the information you need to keep, the IRS wants you to record:
- The mileage of your drives
- The dates of your business trips
- The locations of the places you drove
- The business purpose of your trip
You should record your odometer reading at the beginning of the year. Also, the IRS will want to know your total commuting mileage and your non-commuting personal mileage in addition to your business mileage.
You can manually track your mileage in a notebook or use a spreadsheet or a mileage-tracking app. You may need to keep these records for up to seven years after filing taxes, so be sure your record-keeping solution won’t be lost or destroyed easily.
What Else Should I Know About This Write-off?
An important thing to know is that you can never deduct your commute. The IRS considers where you live a personal choice. So, your first drive in and your last ride home are considered personal expenses.
But this can be mitigated if you have a qualifying home office deduction. Drives that used to be considered commutes can potentially be turned into business drives because you’re technically driving between offices, which is always deductible.
It’s not just your business drives that are worth money, as you can also deduct your qualifying medical and charitable drives (at a lower rate), too. Like your business miles, just be sure to have proper documentation.
Can I Write Off Costs Like Gasoline?
The cents-per-mile rate comes from the IRS and incorporates expenses like gasoline prices, wear-and-tear, and more. You can also deduct the actual costs of using your personal vehicle for business reasons by tracking all your car expenses like gas, oil, repairs, and more. Once you have that figure, you can deduct the percentage that applies to how often you use the car for business.
Keep in mind: if you use the actual expense approach, you must use that method for future deductions. If you use the standard mileage rate for the first year you’re taking the deduction, you can switch between methods for the one that gets you the largest deduction.
As always, be sure to consult your helpful tax professional before making any tax decisions.
Don’t Overlook This Deduction
The mileage tax deduction is often overlooked for two reasons: awareness and difficulty. Some taxpayers simply don’t know about this valuable deduction, and even if they did, the record-keeping requirements keep some away. But it’s often worth your time to track mileage.
Maximizing the deductions you’re entitled to is a key way to potentially lower your taxable income and the taxes you have to pay. This can, in turn, lead to more money in your pocket.
Why would you leave money just sitting in the middle of the road?
For more information on all things taxes, contact Liberty Tax® directly at 1-877-at-Liberty, or visit a conveniently located Liberty Tax® office near you. For real-time updates, follow Liberty Tax® on Facebook and Twitter.