Business Mileage

    

The IRS can and WILL disallow your mileage deduction 

and they did exactly that to a CPA who failed to keep a contemporaneous diary or log of his business trips to prospective clients because he didn’t create the records until a couple of years later and the IRS disallowed his deduction (Kilpatrick, TC Memo 2016-166, 8/29/16).

    

This error cost him $24,316

               

($20,263 in tax and $4,053 in penalties)

   

​It is important to keep complete records to substantiate items reported on a tax return

In the case of car and truck expenses, the types of records required depend on whether the taxpayer claims the standard mileage rate or actual expenses.

To claim the standard mileage rate, appropriate records would include documentation identifying the vehicle and proving ownership or a lease and a daily log showing miles traveled, destination and business purpose.

For actual expenses, a mileage log helps establish business use percentage. Taxpayers should also retain receipts, invoices and other documentation to show cost and establish the identity of the vehicle for which the expense was incurred. For depreciation purposes they need to show the original cost of the vehicle and any improvements as well as the date it was placed in service.

  

As a rule, you’ll be better off using the standard mileage rate if you drive a smaller car

                   

particularly if you drive many business miles. You’re particularly likely to benefit from using the standard mileage rate if you drive an old or inexpensive car.

                

Why? Because you get the same fixed deduction rate no matter how much the car is worth.

          

On the other hand, the actual expense method will likely provide a larger deduction if you drive a larger more expensive car or an SUV or Minivan

   

Deducting the Standard Mileage Rate (SMR)

   

 
  • To be eligible, the taxpayer must own or lease their vehicle and the vehicle must not be part of a fleet.

    

  • The SMR must be claimed in the first year the vehicle is operated.

    • ​Either type of deduction can be used in subsequent years.

   

  • Lessees can only claim the SMR.

  

  • The cost of parking and tolls paid while driving the vehicle can also be deducted.

    • The cost of repairs, gas, insurance or other vehicle-related expenses can not be deducted when using the SMR. ​

   ​

Deducting Actual Expenses

    

 
  • The total amount paid to operate the vehicle for business purposes and includes the cost of gas, oil, insurance, registration fees, licenses, repairs, tires, parking and tools.

For our clients only, a discount code is available for Everlance Mileage Tracker that will allow you the premium subscription for only $35 per year!

view additional information

    

We use Everlance because it's easy, accurate and affordable.  Call us for details.

Rules for Deducting Mileage

    

  • Mileage between your home and principle office (no matter how far away) is considered commuting, and therefore, not deductible.

  

  • The trip between your home and temporary work location is deductible if your main job is at another location.     ​

  • Your commute between home and a second job is never deductible on a day off from your main job.

   

  • Your trip between your regular job and temporary job is always deductible.

  

  • You can always deduct drives between temporary work locations and a second job.

  

  • Having a deductible home office makes many “commute” drives into business drives.

    • You can’t deduct a commuting trip because you work during the trip. Making business calls or listening to work-related tapes won’t cut it. Having advertising on your vehicle won’t convert a commute into a business trip either.

   

  • Expenses related to travel away from home overnight are travel expenses. 

  

  • “Auto Allowances,” offered by employers to pay for employee auto expenses are always taxable to the employee.

  ​

 

Documenting Your Auto Expenses

   

 As with other business expenses, the IRS requires taxpayers to substantiate their deductions with the appropriate documentation.  A mileage log is the documentation required by the IRS to support your auto deduction and must include:

            

  • The date of each trip, and

  • The destination, and

  • The business purpose, and

  • The number of miles per trip

   ​               

The IRS also requires those logs to be maintained contemporaneously. 

      ​    

 

Reputable tax professionals often ask to see receipts and will ask multiple questions to determine whether expenses, deductions and other items qualify. By doing so, they are trying to help their clients avoid penalties, interest or additional taxes that could result from an IRS examinations. 

   

However, if your preparer accepts your information without asking you for any substantiation, don't assume those same expenses will be accepted by the IRS.  Most tax preparation agreements require you to agree, in writing, that your professional will prepare the returns from information you provide and clearly disclaim their liability by explicitly stating that it is your responsibility to provide all the information required for the preparation of complete and accurate returns.

                 

Employers who offer company vehicles to employees should have written policies in
place regarding the use of those vehicles
           
Clients can view (or use) a copy of sample policies
                  

Annual Income Inclusion Amount

                    

When the value of the leased vehicle is above a certain amount, you must also subtract an "income inclusion" amount from the deductible amount of your lease. This income inclusion rule is an attempt to equalize the tax benefits from leasing and owning business vehicles.

                   ​

  • For vehicles first leased in 2019, the threshold is $50,000.

              ​

  • Income inclusion amounts vary depending on the lease amount and the number of tax years during which the leased vehicle was in use for business.

                  ​

  • The income inclusion amount increases each tax year for five years.

                     ​

  • The IRS releases income inclusion amounts each year for vehicles leased and put into use in that year.

                       ​

 Our primary goal as a trusted advisor is to be available and to provide insightful advice to enable our clients to make informed financial decisions.

Continually striving for accuracy, excellence and the highest level of integrity.

Strive Tax & Accounting, LLC

CPA's specializing in small business tax and accounting with emphasis in construction and manufacturing for corporation and passthrough entities.

PO Box 28353

Green Bay, WI 54324

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