What Is The Procedure For Estimating The Business Miles?
If you are looking to reduce your overall tax burden, you should maximize your deductions on business mileage. Every year, IRS announces a standard rate of deductions for calculating tax deductions. You need to estimate the total miles covered for business purposes to claim these deductions. In this regard, you can use the mile estimator tools that help in making calculations according to IRS rules and regulations for mileage deductions. This article provides the complete procedure of mileage estimation for a particular tax year:
1. Use a Mileage Log:
It will assist you in tracking your trips that qualify as business-related. Here, you should know what you can include in this log and what you can’t. The daily commute from home to office doesn’t qualify as a business trip. Hence, it is not deductible.
2. Code the Items In the Log:
You need to record comprehensive details about your business related trips to claim mileage deductions. For easy understanding of each location, you can use codes like ‘O’ for Office, ‘M’ for meetings, etc.
3. Determine the Personal Expenses:
As per the regulations of IRS, it is important to find the value of personal mileage covered in a tax year. Do not take changes or you will likely end up in an IRS audit that will go back multiple years and can carry hefty penalties if your mileage deductions are rejected due to improper records. No fun! There are many valuations and calculations that need to be done. Hence, you can use a mile estimator app for making them automatically. As always, the mileage distance needs to be accurate and match your odometer reading at year start and end.
4. Estimation of Average Work Mileage:
If you are following the traditional method of calculating work miles, you may find the average work miles for a year or week. Take an average week or month and multiply it by the total number of working weeks in a year. If you are taking an average of months, then multiply it by 12 months. Instead, you can use the GPS tracking that provides accurate street by street mileage along with the summary of the trip. For claiming IRS deductions, it is absolutely necessary to differentiate between personal and business miles covered by a vehicle. All the estimates should be precise and accurate and each business expensed trip require justification added at the time of logging.
5. Complete the IRS Form:
If you want to calculate the monetary value of your deductions, you use IRS form 2106 properly. It defines the value of deductions for every type of mileage. This form should be duly filled and attached at the time of tax filing. The mileage log is an important document that will be required for validation at the time of IRS audits.
If you are looking to reduce hassles of calculating the business miles for deductions, you should use an advanced mileage tracking and estimator app.