Search Results for: standard mileage

Automobiles

• If you use your vehicle for business purposes, you may generally use one of the two following methods to compute deductible expenses:
  • Standard mileage rate
  • Actual car expenses
• In this blog we are going to talk about the standard mileage rate

Multiple automobiles

• If you have more than one automobile, you should pay 100% of the costs for the primary business vehicle that is titled to your Corporation/LLC directly from your business bank account or using business funds and use the actual car expense method
• On the other hand, for the second automobile, if it is titled to you personally and not to your Corporation/LLC:
  • probably you will need to have in place an employer reimbursement accountable plan for your Corporation or LLC (see Publication 463 for requirements)
  • track miles and submit mileage reimbursement to the Corporation/LLC by December 31st
  • you should pay the expenses from your personal bank account

Standard mileage rate method

• Instead of deducting the actual vehicle expenses, a taxpayer can use the standard mileage rate method
• You can use this method as a substitute for the following actual expenses:
  • Depreciation
  • Lease payments
  • Maintenance and repairs
  • Gas and oil
  • Insurance
  • Vehicle registration fees
• You must have records showing the below information, and actually these records must be kept regardless if you use the standard mileage rate method or the actual car expense method:
  • total miles driven throughout the year, regardless if the miles were for business purposes or not
  • the number of miles driven for business purposes
  • the business purpose of each business trip
• The mere existence of a mileage log is not sufficient if the entries are too generalized or not supported by other corroborating evidence
• In addition to the mileage records, you should keep substantiation for other deductible expenses, such as auto loan interest, personal property taxes, parking fees, and tolls, which are deductible based on the business use percentage along with the standard mileage rate
• You can see here the rates for 2023: IRS issues standard mileage rates for 2023; business use increases 3 cents per mile | Internal Revenue Service

Standard mileage rate not allowed

• You can not use the standard mileage rate method if you:
  • Use five or more automobiles at the same time for business, such as in a fleet operation
  • Claimed:
    • a depreciation deduction for the automobile using any method other than straight-line depreciation over its estimated useful life
    • a Section 179 deduction on the vehicle
    • a special depreciation allowance on the vehicle
    • actual expenses for an automobile that is leased
  • Have an employer-provided business auto and unreimbursed auto expenses

If you want to use the standard mileage rate, you must choose to use it in the first year the car is available for use in your business. Then, in later years, you can choose to use either the standard mileage rate or actual expenses.

If you need help with your federal or state taxes, give us a call or schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

If you use your vehicle for business purposes, you may be eligible to claim a deduction for the expenses related to your business use. However, to do so, you need to keep a contemporaneous auto mileage log book when you claim a business deduction for the business use of your vehicle.

In this blog post, we will explain you the importance of maintaining a contemporaneous mileage log book and how it can help you avoid tax problems.

Mileage Log Book

A mileage log book is essential for substantiating your claim for the business use of your vehicle, as it provides evidence of the amount and nature of your driving.

Under the substantiation requirements, no deduction is allowed unless you, as a taxpayer, substantiate:

• the amount of each expense,
• the mileage for each business use of your vehicle and the total mileage for all use of the vehicle during the tax year,
• the date of each business use of the vehicle, and
• the purpose of each business use.

The IRS requires that you keep a mileage log book if you want to deduct your vehicle expenses using the standard mileage rate or the actual expenses method. The standard mileage rate is a fixed amount per mile that covers the costs of operating your vehicle, such as gas, maintenance, depreciation, and insurance. The actual expenses method allows you to deduct the actual costs of using your vehicle for business, such as gas, repairs, tires, registration fees, and depreciation. However, regardless of which method you choose, you still need to keep a mileage log book to prove your business use.

Fail on Keeping Records

If you fail to keep a mileage log book or if your log book is incomplete or inaccurate, you may face serious consequences from the IRS. The IRS may disallow your deduction for the business use of your vehicle or it may limit it to a lower percentage, which could result in a higher tax bill, penalties and interest. The IRS may also audit your tax return and ask for additional documentation to support your claim.

Therefore, it is important that you maintain a contemporaneous mileage log book that reflects your actual driving habits and business activities. A contemporaneous mileage log book is one that is created at or near the time of each trip, rather than at a later date based on memory or estimates. A contemporaneous mileage log book is more reliable and credible than a reconstructed one, as it reduces the risk of errors and omissions.

Court Case

An example that illustrates the importance of keeping an auto mileage log is the court case Wolpert, T.C. Memo. 2022-070. In this case, the taxpayer traveled for his consulting business and deducted car and truck expenses on his Schedule C, Profit or Loss from Business. The IRS disallowed the $7,528 in car and truck expenses for taxable year 2016 because the taxpayer failed to substantiate the mileage under the substantiation rules mentioned above.

Conclusion

By maintaining a contemporaneous mileage log book, you can ensure that you claim the correct amount of deduction for the business use of your vehicle and avoid any potential problems with the IRS. A mileage log book is not only a tax requirement but also a good business practice that can help you track your expenses and optimize your profitability.

Check here our video about this case. We also have other videos on our YouTube channel that you might find useful.

In the meantime, if you encounter any issues with your taxes or have any questions, we are here to help you with your accounting, QuickBooks, and tax needs. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

IRS rules and exceptions abound, but there are some questions we can answer simply.

Next to your home, your car is probably the most expensive investment you make. And the costs of paying for and maintaining it can be considerable. Can you recoup some of your investment by claiming vehicle expenses on your tax return?

Sometimes. The IRS has many restrictions on the business use of a vehicle, and those restrictions have many exceptions. Better to know these upfront than to have to correct a tax return after you’ve filed it. Here are some questions and answers that may help you decide whether you’re eligible.

How does the IRS identify a “business vehicle”?

A car, van, pickup, or panel truck.

What are transportation expenses?

These are “ordinary and necessary expenses” incurred when you, for example:

• Visit customers,
• Attend a business meeting held at a location other than your regular workplace, or
• Go from home to a temporary workplace that is not your company’s principal location.

The daily commute to and from your regular office is not deductible. The IRS considers this personal commuting expenses.

What if I’m on an overnight business trip away from home?

The IRS considers these travel expenses, and they’re reported differently. Your car expense deduction, though, is calculated the same way in both situations.

What if I use my car for both business and personal purposes?

You’ll calculate the expenses incurred for each by determining how many miles you drive for business and how many you drive for personal reasons.

I work in a home office. Can I deduct any driving expenses?

Yes, you can deduct the cost of driving to “another work location in the same trade or business.”

How do I calculate my deductible expenses?

There are two options. You can choose between the standard mileage rate and actual car expenses – depreciation, oil and gas, insurance, and repairs.

Depreciation? Isn’t that difficult to calculate?

Yes, especially for cars. If you plan to take this kind of deduction, please let us handle your tax preparation for you. Depreciation is very, very complex, and sometimes requires more than one calculation method.

What kind of business vehicle expense records do I need to maintain?

You know the drill here. If the IRS ever wants to examine your return, it will expect evidence like receipts, cancelled checks, and credit card statements. You’ll need to document the date and location where you incurred the expense. You’ll need accurate mileage records (miles driven, purpose of trip, etc.).

These requirements scream for some kind of organized computer log or written diary, along with a safe place for any paper receipts, bills, etc. There are numerous mobile apps that can help you with this task. We can steer you in the right direction.

If you’re planning to deduct car expenses, it’s important that you keep careful paper or electronic records.

Where will I be reporting transportation expenses?

If you are self-employed, you will report business-related vehicle expenses on Schedule C or Schedule C-EZ (Form 1040). Farmers should use Schedule F (Form 1040). You’ll also want to complete a Form 4562, which is used to report depreciation and the Section 179 deduction.

Maintaining accurate records for car and truck expenses is time consuming and detail intensive. And that’s once you understand all of the IRS’s rules and exceptions surrounding this deduction. To avoid having to fix completed tax documents that the IRS has questioned, talk to us before you put a vehicle into business use. We’ll be happy to evaluate your transportation situation and guide you through the process.