Claiming the tax deduction for business-related mileage can reduce your t ax burden, but ensuring that you realize true value from this benefit requires careful record keeping. (In fact, the IRS explicitly asks whether you have written documentation of mileage claims you make when you file your return). Here are three reasons you should be recording the miles you drive your vehicle for business purposes.
1. Separating Personal and Business Use
The standard mileage deduction for business use allowed by the IRS for the 2018 tax year is 54.5 cents per mile, a one cent increase from 2017.
Your place of business can be a starting or ending point on your mileage-deductible trip (for example, leaving your office to meet a client for a business lunch), but your typical commute cannot be included in your mileage deduction — even if you conduct business (such as making a client phone call) during it — unless you’re working from a temporary location. No matter what: If you claim mileage deductions, the IRS clearly states it’s the taxpayer’s responsibility to document all business mileage claimed, and report it accurately when filing taxes.
2. Audit Protection
Whether you rely on an Excel spreadsheet, paper journal, or a mileage-tracking app, tax attorney Anne Marie Diggle Rábago says factual support to prove you have driven the miles you say you have for business reasons could help you weather an audit more easily: “This is not an area to guesstimate or overembellish.” says Rábago. “If you are selected in the audit lottery, they will almost certainly examine your vehicle expense deduction.”
In addition to tracking the actual mileage numbers, record the “5 Ws” (who, what, when, where, why) in your mileage log. If you are audited, the IRS will look for such documentation to substantiate that mileage was in fact business-related. Without such documentation in the event of an audit, the IRS could decide to disallow your deduction, costing you far more than the hassle of jotting down notes about your trip.
3. Logging Mileage Is Easy — and Helps Minimize Taxes
Logging your miles can help you track and capture the potential deductions inherent in some of your less “obvious” business-related miles. (For example, stopping by the post office on your drive home to mail a business letter could turn an otherwise nondeductible commute into partially eligible deductible miles.)
Keeping this log can also help you compare the value of a standard deduction to actual expenses to determine which is more valuable. For example, business-related expenses like auto maintenance, oil changes, car washes, parking, and tolls may be tax deductible to the extent that they contribute to your business use of your car. Tax manager Charlotte Cathro of the CPA firm Myers Brothers Kalicka also reminds us that self-employed individuals who finance their vehicle with an auto loan may be eligible to deduct interest paid. If you drive a gas guzzler, claiming your actual expenses versus the standard deduction may work in your favor, too.
A mileage log can help you compare all of these scenarios to figure out which method is optimal for reducing your tax burden.