As a business owner, you know that success doesn’t happen by shutting yourself into an office and going nowhere. You have to get out and meet with customers, network with other business owners, and be the face of your business. And a lot of times, that means putting plenty of miles on your vehicle. That adds up to more gas, more frequent oil and tire changes, and other maintenance and repairs.
Though you may consider that to simply be a necessary investment in your business, those expenses can add up quickly. But the IRS recognizes how essential those miles can be to a growing company, and so they offer business owners the chance to claim a deduction for them.
Which Deduction Option to Use
If you’re not already aware, there are actually two ways that you can claim a deduction for the miles you drive:
- Standard Mileage Deduction: This option allows you to claim a flat rate of $0.535 per mile driven. This was the rate for 2017, and changes each year.
- Deduction of Actual Expenses: This option allows you to deduct a certain percentage of your actual expenses on the vehicle, based on how many miles were driven for business purposes.
Which option you use will depend on many factors. For starters, you may only qualify for one of the two options. But if you do qualify for both, you will want to use the option that offers you the highest deduction. Deciphering your qualifications and the benefits of each option is complex, so we strongly suggest you work with an expert when you file your business tax return in Provo.
How to Claim the Standard Mileage Deduction
Most business owners find the standard mileage deduction to be the simplest and most effective way to claim their business mileage. If this is the case for you, and you qualify for this type of deduction, you will need to keep thorough records of every mile driven for business purposes. This goes far beyond simply writing down the distances driven. You will need to create a spreadsheet that includes all of the following details:
- Date of trip
- Your destination
- Purpose of the trip (meeting with a supplier, attending a conference, etc.)
- Odometer reading pre-trip
- Odometer reading post-trip
- Total miles driven for each trip
Additionally, you will want to have space to calculate weekly total miles, year-to-date miles, and end-of-year mileage. This will make it much simpler for you to reference the totals and provide detailed information regarding your travels. Remember, not every business owner qualifies for this form of deduction, so it’s important that you meet with a Provo CPA to find out if you qualify, as well as properly plan for the tax year.
How to Claim a Deduction for Actual Vehicle Expenses
For some business owners, claiming a deduction for actual vehicle expenses provides a higher benefit. If this is the case for you, or if you don’t qualify for the standard mileage deduction, you will need to track both your miles driven as well as the following types of vehicle expenses:
- Tire replacement, rotation, balance, etc.
- Oil changes
- Other repairs and maintenance
- Insurance expenses
- Licensing and registration
- Mandatory vehicle inspections
We recommend keeping a spreadsheet to keep a running total of your vehicle expenses throughout the year. But you must also keep copies of all receipts for these expenses if you wish to claim them in your deduction; your personal records won’t suffice.
You may be wondering why you must also keep records of your mileage, if you’re keeping copies of your receipts. This is because you can only claim a percentage of the vehicle expenses, and that percentage is based on how much of the mileage put onto your car is related to business purposes. For example, if you drove 30,000 miles in the last year, and 15,000 of those miles were for personal transportation, you can only claim 50% of your vehicle expenses in your deduction. So, maintaining an accurate record of your business-related mileage is important to be able to claim this deduction.
Due to the complexity involved with not only claiming this deduction, but knowing which you qualify for and which will yield a higher return for you, it’s important that you work with an experienced CPA to file your business tax return in Provo. The experts at Biesinger & Kofford CPAs can help you to determine which means of claiming your deduction is the most beneficial to you, so contact us for an appointment today.