Business Driving Expenses

Tax season is a fun time of year for anyone attempting to gather all their business expenses, receipts, and personal income information into an intelligent, cohesive body that makes any kind of sense and will make filing tax a bit less painful. They say that only death and taxes are inevitable, but they do not have to be equally painful.

With the introduction of so many new software options specifically for filing taxes, the process itself has become a much simpler one, more along the lines of fill-in-the-blank question and answer. However, the frantic scramble of trying to collect all the information and paperwork needed to fill in those blanks is much the same as ever.

If you are the organized personality type, this may be a simple matter of pulling out a few files. For the rest of us, tax time is a mad rush of hunting through piles of receipts, shuffling statements, and praying we didn’t miss anything. Do I have my W2? My mortgage interest statement? How about my miles from work?

The IRS requires a “daily log showing miles traveled, destination and business purpose.” So you basically need to have a notebook with you at all times to track all this, not to mention a pen, a calculator, and a reason for breathing. Or do you? If your smart phone is a permanent attachment to your person, then you can download a miles tracker app, which not only tracks your mileage, but will separate your personal from your business travel.

The IRS allows business travel expenses to be calculated and deducted in two different ways. The first way is the actual mileage calculation method. Under this method’s rules, you have to track of all of the costs associated with the business use of your car and figure out what percentage of your vehicle’s use is for business. Actual mileage allowable expenses include licenses, lease payments, registration, gas, insurance, repairs, tires, tolls, and even parking fees.

Having a miles tracker app on your phone will allow you to also log the expenses you have associated with your travel. Once you have the total expenditures for all the things the IRS allows, you multiply that by the percentage of business use. For example, if you have $10,000 in total expenses and you use the car for business 50% of the time, your deduction is $5,000. If you use your vehicle more than 50% of the time, this method will likely give you the best deduction.

The second method for calculating business expenses is the standard mileage calculation method. This method takes the number of miles you drive and multiplies that by the arbitrary number the IRS came up with as the mileage rate for that year. So, if you drove 1000 miles and the mileage rate is fifty cents per mile, then your deduction is $500. The calculations for this method are very easy and if you drive less than 50% for business, you may just want to keep it simple and use this method.

Whichever method you decide to use, you need to keep in mind that you cannot change methods from year to year. If you think your use may increase or decrease dramatically, you may need to factor futures estimates into your choice. The best option is to use a miles tracker app to log your mileage and your expenses and then to get a tax professional’s advice based on both your current business travel and your future expectations of travel.

Lars Boesen