This week we would like to talk about a common but valuable business tax deduction, vehicle mileage. When you deduct your vehicle mileage, you keep track of your mileage and then multiply it by the standard mileage rate. You then take that amount and deduct it on your taxes. For example, in 2010, the mileage rate was 50 cents per mile. So if you drove 20,000 miles in 2010 you would have been able to deduct $10,000.
If you choose to keep track of mileage, you will need some sort of way to record the mileage. The most common method is to use a mileage book that can be purchased at any office supply store. In it, you find a place for the date, purpose of the trip, and beginning and ending miles. This is the best way to track miles and the most accepted by the IRS. However, in the real world it is not always practical and almost never kept up. We get in such a hurry and don’t take time to write it all down. Another commonly used method is a small calendar. Many people write down where they went and the total miles for the day. There are also computer programs and phone apps that you can purchase as well. For example, the newer version of QuickBooks has a section to record your miles.
If you have certain places you go all the time, it is easy to record those miles and it is appropriate to keep track of when you go there. For example, one of our clients owns a sandwich shop. There are certain places they go every day. They go to the bakery to pick up rolls; they pick up the produce; and have to go to the bank to make the previous day’s deposit. One day they clocked the miles and recoded it in the front of a mileage book. Every day after that, they simply recorded the total miles. If they have to make extra trips they add them to the book. This is a perfectly acceptable way to track miles.
However, you choose to record your miles the important thing is to be consistent and accurate. If you have more than one vehicle that you use, you will need to record the miles for each vehicle separately. If you have a vehicle that is used exclusively for business, in other words you do not use if for personal activities, then you can record the mileage at the beginning of the year and then again at the end of the year. It must be used only for business though.
We hope this helps you know how to track and deduct your mileage. There are a few more options when it comes to tracking mileage. Check out www.avoidbeingaudited.com to learn more about vehicle expense as well as other tax saving deductions.