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How do tax deductions/write-offs make it to profit and loss?

I record mileage for all work-related driving. What process should I follow to have that ultimately show up as an expense in my profit and loss statement? If the IRS cost per mile is $0.58, should I sum up my mileage each month and withdraw from my bank account mileage x $0.58 and mark as an auto expense?

 

I have a feeling that is incorrect, and that for the mileage method of recording auto expenses it is just taken as a write-off. However, this write-off doesn't show up on the profit and loss statement, which means Quickbooks isn't showing an accurate representation of what it cost to run my business.

6 Comments
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Re: How do tax deductions/write-offs make it to profit and loss?

Your mileage is not a business expense, it is a tax deduction on your annual income tax return. You should not record your mileage expense on your Profit & Loss Statement. You can choose to take a deduction for mileage or the "actual" vehicle operating and maintenance expenses for your company car, one or the other. You should keep track of your mileage outside of QuickBooks, or work with your Accountant to track it and record the deduction on your annual Income Tax Return.
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Re: How do tax deductions/write-offs make it to profit and loss?

I understand what you're saying, but by taking the deduction for mileage and not having it show up anywhere on the profit and loss statement seems misleading. If I spent personal money to drive those miles then it never shows as an expense. I'm just trying to understand fundamentally how that makes sense.

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Re: How do tax deductions/write-offs make it to profit and loss?

I understand where you are coming from. Think of it as not real money "spent". You are entitled to take a deduction on your annual Income Tax Return for what is essentially "wear and tear" PLUS your "time" for business travel in your company vehicle. You have not spent real money on this expense, but time is money, and you will have to pay for the wear and tear on your vehicle over time. It's like a "time and use" credit I always say. You can only record "actual" expenses on your P&L Report. Your fuel and actual repair costs are "real money spent". But your time and the wear and tear on your vehicle do not equate to "real money spent" that should be recorded as a business expense.
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Re: How do tax deductions/write-offs make it to profit and loss?

Thanks for the detailed response. My understanding is that I have to take one of the two options though:

  1. Actual expenses, where I pay for all auto-related expenses with my business account. In this case, everything shows up as an expense on the P&L, but might overstate my actual expenses since maybe I pay for gas that doesn't go fully toward business. I keep track of the % of total mileage that year used for the business, which affects how much of that expense I can treat as an expense in the IRS' eyes. So say I spend $1000, but 90% is for business, then in Quickbooks it still sees $1000 as my expense, but when doing taxes my accountant will only report 90% ($900).
  2. Mileage, where I track all business miles and where I use my personal account to pay for all auto expenses, which will never be visible in Quickbooks. At the end of the year I multiply total business miles by $0.58 and my accountant deducts it. A deduction is effectively outside of Quickbooks. I don't get paid back per se for all of these personal expenses I incurred, but it does lower the amount of taxes I owe.

Please let me know if any of this is incorrect.

Established Community Backer ***

Re: How do tax deductions/write-offs make it to profit and loss?

Yes, you have to make a choice between taking the deduction for your "actual" auto expenses and your mileage deduction on your annual Income Tax Return. No, you do not have to put your business fuel and auto repair costs for a company vehicle and business travel under your personal account. You can use your business debit or credit card for your fuel and auto expenses related to the business. You can also split the charges "automatically" with a percentage between "personal" (Owner Equity Personal Expense) and "business" operating expense for fuel and auto repair and maintenance. It's easy to create bank rules that will do this expense categorization and splitting of business and personal expenses.
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Re: How do tax deductions/write-offs make it to profit and loss?

Thanks for the response, I think I almost fully understand!

 

What's hanging up though, is why would anyone choose just the actual expense option when with the mileage deduction you get to still charge actual expenses and also get to deduct $0.58 per mile?

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