Can I Deduct Mileage and Auto Expenses?
Tax deductions are a popular topic among business owners. When you can and can’t deduct mileage and auto expenses is one of the more common questions that come up.
Since I am not a CPA or a tax expert, I always recommend that my clients seek the advice of a trusted accountant or CPA when it comes to taxes and when to deduct mileage and auto expenses. One of my favs, Joe Lutz, is a small business CPA here in Denver, Colorado (though he works with businesses all over the country). I sought the assistance of Joe and his accountant/daughter, Natalie Lutz, in this episode of All Up In Yo’ Business to help
me all you confused/busy/overwhelmed business owners figure out how and when you can deduct mileage and auto expenses from your small business.
So you’ve started a business (woohoo!!). If you’re like me, you are probably using your personal vehicle to drive to meetings, networking events, seminars, and beyond. So should the business, rather than you personally, own your vehicle? Your business can own your business vehicle, however in most cases, auto insurance on a vehicle owned by the business is more expensive. And in many cases you won’t see much of a difference or benefit doing it that way.
If you have your business own the business vehicle, can’t you just deduct mileage and auto expenses on the business’s tax return? Nope; you are still required to prove all of your business miles driven (same as if you owned the vehicle yourself and took a mileage reimbursement as discussed below).
How do you prove the business miles driven? Joe and Natalie recommend using odometer readings as frequent as possible, preferably daily, to record your business miles driven. Some people like to keep a notepad in the car and will make note of the starting mileage in the beginning of the day and the ending mileage when the day is over. Or, as with pretty much everything else in life, there’s an app for that! Thank goodness for technology, amirite?! Personally, I am far too lazy and forgetful to do either of those things and always forget to log my mileage even with a handy-dandy app. Here’s what I do: I already put everything in my calendar. I calendar all of my meetings and appointments and the locations. So once a month or every few weeks I will make note of my odometer reading, then I go into my calendar and use Google Maps to calculate how far I drove for business every day. Here’s another helpful (maybe) tip: you get your car’s oil changed every three months or so, right? Hold on to those little stickers they put on your windshield that have the date and mileage on them!
You have two options to deduct mileage and auto expenses: the most common is using the standard mileage rate, which is currently 57.5 cents per business mile driven. (Who’s the ass clown who thought that additional half of a cent was necessary, by the way?) Or you can use the actual expenses. In that case, you would use the business percentage of actual expenses on the vehicle. For example, if 50% of the time spent in your car is business-related, you can deduct 50% of your actual vehicle expenses. But unfortunately, if you use the actual expenses method, you are still required to keep track of your business miles driven and all expenses on the vehicle.
Alternatively, if you personally own the vehicle, Joe and Natalie recommend the business reimburse you for the miles driven at 57.5 cents/mile. This is typically the easiest and most efficient way to deduct mileage and auto expenses.
You can deduct mileage and auto expenses the same way if you lease the business vehicle, too. But in that case, the actual expense method would include part of the lease payment as well. However, if your vehicle is over $17,000, you may be required to reduce some of the lease payment expense.
What about the mileage to-and-from your home and office every day? Is that deductible as well? Generally, commuting is not deductible. However, if you have an office in the home and take that deduction, you may be able to include that mileage when you deduct mileage and auto expenses.
Taxes are tricky. What a shocker! That’s why I prefer to stay as far away from them as I possibly can. If you deduct mileage and auto expenses improperly or do not keep adequate records to back up those deductions, you may find yourself on the receiving end of an IRS audit. I haven’t experienced that myself (knock on wood!!!!!!!!), but I hear they aren’t a whole lot of fun. So do yourself a favor and let the experts handle it. Find a great accounting team (cough cough Joe and Natalie), and let them handle it so you can focus on what you do best: your business.
Joe and Natalie can be contacted at:
Joseph D. Lutz CPA, LLC