Mileage Deduction 101 . . .

Mileage

If you drive your car or other vehicle for business purposes, you can take a mileage deduction of 57.5 cents in 2015 for every mile you drive for work.  Here is everything you need to know in order to get the most out of your mileage write off.

The important thing that you need to remember when planning to take a mileage deduction on your taxes is that you can only deduct trips that are for business.

 

What Types of Business Driving Qualifies for a Mileage Deduction?

Travel between offices: You can take a mileage deduction for travel from your office or work site and your drive to a second place of business.

Errands/supplies: Driving for business-related errands such as trips to the bank, office supply store or post office all qualify for a mileage deduction.   Additionally, these small trips add up quickly and many business owners forget to keep track of these drives.

Business meals and entertainment: You might not realize it, but all of the trips you make to meet with clients or vendors for dinner, coffee, drinks, etc., all qualify for a mileage deduction.

Airport/travel: The miles you drive to and from the airport for a business trip also qualify as a deduction.

Odd jobs: If you’re earning an income from odd jobs such as babysitting, pet care or lawn work, all of the drives to and from those locations can be written off.

Customer visits: Driving from your office or other work site to meet with customers or clients for business at an office or job site qualifies for the standard mileage deduction.

Temporary job sites: Driving from home to a temporary work location that you expect to last (and does in fact last) less than one year.

Job seeking: If you are a job-seeker, you may deduct the miles that you drive to find a new job in your current occupation.  However, you cannot take the mileage deduction if you’re looking for a job in for the first-time.

Commuting is Not Eligible for a Mileage Deduction

Now that we’ve covered which types of drives are eligible for a mileage deduction, we need to look at those that are not deductible.  The IRS has some very strict rules on what constitutes deductible business driving.  The one that most people get in trouble with is commuting, which is never deductible because the IRS considers it to be a personal expense. Commuting occurs when you go from home to a permanent work location—either your:

  • Office or other principal place of business
  • Another place where you have worked or expect to work for more than one year.

Even if a trip from home to your office (or other principal place of business) has a specific business purpose—for example, to meet with a client at your office—it is still considered commuting and is not eligible for a mileage deductible if you start out from your home.

You also cannot take a mileage deduction for a commuting trip simply because you work during the trip—for example, you make business calls on your cell phone, listen to work-related tapes or have a business discussion with an associate or employee.

Avoiding the Commuting Rule If You Have a Home Office

One way to avoid the harsh commuting rule is to have a home office that qualifies as your principal place of business. In this event, you can take a mileage deduction for any trips you make from your home office to another business location.

For example, you can deduct the miles you drive from home to your second office, a client’s office or to attend a business-related seminar. The commuting rule doesn’t apply if you work at home because, with a home office, you never commute to work (you’re there already). Your home office will qualify as your principal place of business if it is the place where you earn most of your income or perform the administrative or management tasks for your practice.

If your home office qualifies as your principal place of business, you can vastly increase your mileage deduction for business trips.

Avoiding the Commuting Rule If You Go to a Temporary Work Location

You can avoid the commuting rule and still have your drives qualify for a mileage deduction if you travel between your home and a temporary work location.  A temporary work location is any place where you realistically expect to work less than one year.  It can be inside or outside of the metropolitan area where you live.  However, if the location is inside your metropolitan area, this exception applies only where you have an outside office or other regular work location away from your home.

How Much is a Mileage Deduction Worth?

You have two options for deducting your vehicle expenses: You can use the standard mileage rate or you can deduct your actual expenses.  The standard mileage rate is by far the easiest to use.

With the standard mileage rate, you take a mileage deduction of a specified number of cents for every business mile you drive.  The IRS sets the standard mileage rate each year.  The 2015 Mileage Rate is 57.5 cents per mile.  To figure out your mileage deduction, simply multiply your business miles by the standard mileage rate for the specific year.

Example: Ed, a salesperson, drove his car 20,000 miles for business during 2014. To determine his mileage deduction, he simply multiplies his business miles by the applicable standard mileage rate (56 cents per mile in 2014). This gives him a total mileage deduction for the year of $11,200 (56 cents × 20,000 = $11,200).

The big advantage of the standard mileage rate is that it requires less record keeping. You need to keep track of how many miles you drive for business and the total miles you drive, but you do not need to record actual expenses for your car, such as gas, maintenance, and repairs. However, keeping an accurate mileage log can be tedious, and the IRS requires those logs to be fairly detailed. To save yourself time and headache, be sure to review mileage logs the IRS didn’t accept and don’t make the same mistake. You can also use a mileage tracking app, like MileIQ, to make the process easy and ensure you’re in compliance.

If you choose the standard mileage rate, you cannot deduct actual car operating expenses—for example, maintenance and repairs, gasoline, taxes, oil, insurance and vehicle registration fees.  All of these items, as well as depreciation, are factored into the standard mileage rate set by the IRS.  However, you can deduct the interest you pay on a car loan, as well as parking fees and tolls for business trips (but you can’t deduct parking ticket fines or the cost of parking your car at your place of work).

There are some important restrictions on who can use the standard mileage rate.  If you don’t qualify to use it, you must use the more complicated actual expense method.  First, and most important, you must use the standard mileage rate the first year you use a car for business.  If you fail to do so, you are forever stuck using that method for that car.

If you use the standard mileage rate the first year, you can switch to the actual expense method in a later year, and then switch back and forth between the two methods after that, subject to certain restrictions.  For this reason, if you’re not sure which method you want to use for, it’s a good idea to use the standard mileage rate the first year you use the car for business.

 

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