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Most self-employed professionals understand the need to track the miles they drive for business, yet few actually do a consistent job of keeping an accurate mileage log. With the 2015 IRS mileage rate set at 57.5 cents per mile, this is tax deduction that can add up to big money quickly. Avoid these 5 common mistakes to be sure you get the most out of the valuable tax deduction.
This one is pretty straightforward, but it’s sadly the most common. There are two common reasons for this: First, countless professionals don’t even realize they can take a mileage deduction for the miles they drive for business, or mistakenly don’t think the deduction applies to them. In nearly all cases, however, anyone who is driving their personal vehicle for work can take a tax deduction for those miles – as long as they aren’t being reimbursed elsewhere. Secondly, a lot of people simply think the deduction is so small that it’s not worth the hassle of keeping a detailed and accurate log. It’s easy to understand why – 57.5 cents doesn’t sound like that much money, but trust me when I say those miles add up fast. This brings us to our next mistake…
You’re remembering to log the longer drives you make in the course of running your business – client visits, conferences and job site visits, but what about the smaller drives you’re making? Take a look at your past logs. Did you document your drives to get gas? How about the drive to the coffee shop to bring your client a coffee for a meeting? Trips to buy office supplies, the post office, hardware store, etc… I’m willing to bet you’re forgetting to track at least some of those shorter drives and at 57.5 cents per mile this equals serious money.
Now that we’ve driven home the point that business mileage is a hugely valuable tax deduction, let’s move on to the third fatal flaw people make – not keeping a “contemporaneous” log. What the heck does “contemporaneous” mean? In a perfect world, you should be keeping a mileage log for your business miles every day. However, the United States Tax Court says that it’s sufficient if you note your miles at least once per week. In one court case, a manager for a construction company claimed a $28,504 deduction one year. He lost an IRS audit but won on his appeal to the Tax Court. The Court said that it was sufficient that once per week he recorded his business miles in a calendar, as well as the nature of his daily business activities and weekly travel. (Ressen v. Comm’r, T.C. Summ. Op. 2015-32.) However, you’ll avoid problems with the IRS, if you record your business miles each day, or use a mileage tracking app to automate the process and record each drive as it happens.
While you can take a tax deduction for the work miles you drive, you can never deduct your commute to and from work. This means that you can’t deduct your drive to and from your principal office. If you don’t have a regular office, you cannot deduct your drive from home to your first business event or from your last appointment to home. However, one way to avoid the 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. 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 since you’re there already. As long as you follow IRS guidelines, you can also deduct your home office expenses.
This one might sound a bit silly, but we get this question everyday! The short answer is that you can deduct ANY driving you do for business, as long as it’s not your commute and you weren’t reimbursed for it. (If you receive a mileage reimbursement for less than 57.5 cents per mile, you can deduct the difference) Examples of deductions that are often overlooked include: Travel between offices, running errands or picking up supplies, business meals and entertainment, trips to the airport for business trips, customer visits and trips to temporary job sites. Additionally, if you’re job hunting, you can deduct the miles that you drive to find a new job in your current occupation. But, you can’t take the deduction if you’re looking for a job in that field for the first-time.
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