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MILEAGE DEDUCTIONS
in the UNITED STATES
Best Practices for Turning Your Miles Into Money
Table of Contents
3 | Introduction Why Track Miles?
4 | Nine Tips for Maximizing the Value of Your Miles
18 | MileIQ Automatic Mile Tracker
19 | About Us
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Introduction Why Track Miles?
If you drive your car or other
A $5,750 deduction
Even if you drive much less than 10,000 miles
per year for business, your mileage deduction
vehicle for business purposes, can still add up. For example, if you only
you need to track your miles.
Why? Because you dont want to
drove 50 miles per week for business reasons
throughout the year, you could claim a $1,380 could easily be worth
more than $2,375 in
deduction on your 2015 tax return.
end up like Jim Chapin.
But, as Jim Chapin discovered, theres a catch.
How much will a $5,750 deduction save you on By far the most common reason taxpayers lose
your taxes? It depends on your income. But, the business mileage deduction when they are
when you consider that it will save you not only audited by the IRS is because, like Jim Chapin,
federal income tax, but Social Security and they lack adequate records.
Medicare taxes, and state income tax as well,
a $5,750 deduction could easily be worth more
than $2,375 in tax savings (which is money in
your pocket).
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Nine Things You Need to Know About Tracking Miles
01 02 03
Not All Business- The Standard The Actual Expense
Related Driving Mileage Rate Is Method Can Give You
Is Deductible Easy To Use Larger Deductions
04 Employees May
Deduct Work-
05 06
Related Driving Deductions Deducting Non-
When Business Driving
You Drive
A Company
07 09
Car
Reporting Business The Penalties Of Not
Miles On Keeping An Accurate
08
Your Tax Return Mileage Log
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In addition, commuting is never from your home. Nor can you deduct For example, you can deduct the cost AVOIDING COMMUTING RULE
deductible because the IRS considers it a commuting trip because you work of driving from home to your second IF YOU GO TO A TEMPORARY
to be a personal expense. Commuting during the tripfor example, you office, a clients office, or to attend a WORK LOCATION
occurs when you go from home to a make business calls on your cell phone, business-related seminar.
permanent work locationeither your: listen to work-related tapes, or have a The commuting rule doesnt apply The commuting rule also doesnt apply
business discussion with an associate if you work at home because, with a when you travel between your home
office or other principal place or employee. home office, you never commute to and a temporary work location. A
of business, or work (youre there already). Your home temporary work location is any place
another place where you have AVOIDING COMMUTING RULE office will qualify as your principal where you realistically expect to work
worked or expect to work for IF YOU HAVE A HOME OFFICE place of businessif it is the place less than one year. It can be inside or
more than one year. where you earn most of your income outside of the metropolitan area where
One exception to the rule limiting
deductions for commutes is if you or perform the administrative or you live. However, if the location is
Even if a trip from home to your office
have a home office that qualifies as management tasks for your practice. inside your metropolitan area, this
(or other principal place of business)
your principal place of business. In If your home office qualifies as your exception applies only where you have
has a specific business purposefor
this event, you can deduct the cost of principal place of business, you can an outside office or other regular work
example, to meet with a client at your
any trips you make from your home vastly increase your deductions for location away from your home.
officeit is still considered commuting
office to another business location. business trips.
and is not deductible if you start out
Never Deductible
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Summary of Deductions
(Source: IRS Publication 463, Travel, Entertainment, Gift, and Car Expenses.)
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TIP # 2
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TIP # 3
You then get to deduct your business percentage of all these expenses, plus
depreciation.
Example: Laura, a salesperson, drove her car 8,000 miles forher business and a
total of 16,000 miles. Her business use percentage is 50% (8,000 16,000 = 50%).
She can deduct 50% of the actual costs of operating her car, plus the full cost of
any business-related tolls and parking fees. Her expenses amount to $10,000
for the year, so she gets a $5,000 deduction, plus $500 in tolls and parking for
business, plus $3,160 for depreciation.
The actual expense method is more likely to give you a larger deduction than
the standard mileage rate if you drive a car that is more expensive than average
to operate.
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TIP # 4
If youre an employee and use your personal car only to the extent that they, along with your other deductions only to the extent that they exceed 2%
for work-related business trips (not including miscellaneous itemized deductions (if any), exceed 2% of this amount, or $2,000. Her total miscellaneous
commuting), you may deduct your mileage if, and to of your adjusted gross income. Miscellaneous itemized itemized deductions, including her business mileage,
the extent, you are not reimbursed by your employer deductions include amounts you spent during the amount to $3,000. Because of the 2% of AGI limit, she
for your expenses. year for all your unreimbursed employee expenses may only deduct $1,000 of this amountthe amount
(including business mileage), investment expenses, that exceeds $2,000.
You may use either the standard mileage rate or actual tax preparation fees, and hobby expenses (up to
expense method to calculate your deduction. However, hobby income). Because of these limitations, employees are always
your deduction is subject to a significant limitation: better off if they are reimbursed by their employers
it is classified as a miscellaneous itemized deduction. Example: Melinda, a single taxpayer, is an employee for the cost of using their personal cars for work.
This means you can deduct it only if you itemize your for a consulting firm. During the year, she drove her Such reimbursement is tax-free to the employee
personal deductions on IRS Schedule A. If you dont personal car 5,000 miles for work visiting clients, provided that it is made under an accountable plan.
itemize, you get no deduction. You should itemize only and was not reimbursed for her car expenses by her Basically, this requires that the employee document
if all your personal itemized deductions exceed your employer (other than parking). Using the standard the expenses in a timely manner and return any excess
standard deduction. (In 2014, the standard deduction mileage rate, she is entitled to a $2,750 business payments to the employer.
is $6,200 for single taxpayers, and $12,400 for a married mileage deduction for this unreimbursed employee
couple filing jointly.) If you do itemize, you may expense. Her adjusted gross income AGI) is $100,000.
deduct your unreimbursed business mileage expenses She may deduct her miscellaneous itemized
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Deducting Interest
Reporting Business Mileage on a Car Loan
On Your Tax Return You can deduct the interest you pay on
a loan for a vehicle you use for business
whether you use the standard mileage
If, like most self-employed people, you are a sole As you can see, youre required to tell the IRS:
rate or actual expense method. If you
proprietor, you report your business income and claim
your business deductions by filing IRS Schedule C, the date you placed your car in service deduct the interest you pay on a car loan,
Profit or Loss From Business with your personal tax for your business you have the option of reporting the
return. You add up all of your current expenses on amount in two different places on your
the total miles you drove during the year
Schedule C and deduct the total from your gross Schedule C: You can lump it in with all
for business
business income to determine your net business your other car expenses on line 9 of the
incomethe amount on which you are taxed. the total miles you commuted during the year schedule, titled Car and truck expenses,
To make this task easy, Schedule C lists common or you can list it separately on line 16b as
the total miles you drove when you were not
expense categoriesyou just need to fill in the on business and were not commuting an other interest cost. Reporting your
amount for each category. One of the categories is interest expense separately from your
car and truck expenses, which is contained in line 9 whether your vehicle was available for personal other car expenses reduces the total car
as shown below: use during the year, and expense shown on your Schedule C. This
whether you (or your spouse) have another vehicle can help avoid an IRS audit.
available for personal use.
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your entire mileage you qualify), and claim your deduction on your
tax return.
time and date of the drive
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PAPER MILEAGE LOG BOOKS: The traditional MILEAGE LOG TEMPLATES: Mileage log MILEAGE TRACKING APPS: There are several
method of mileage tracking is using a paper templates are pre-filled electronic spreadsheets kinds of mileage tracking apps - ranging from
mileage log book that you keep in your car and fill that remind you what information you need to manual entry of distances to automatic drive
out each day as you drive for business. Back in the record about your drives. Free templates are readily detection - that can be used on a smartphone or
pre-digital age, this was the only method to track downloadable from the Internet. You can find many a tablet device. They all aim to streamline the
miles. Its still commonly used, but the IRS does not with a simple Google search. Since a spreadsheet is record-keeping process and ensure you have the
require paper mileage log books. Reliable electronic electronic, not paper, you dont have to worry about appropriate information you need come tax season.
records are accepted by the IRS. clutter or deciphering your own handwriting. The If you spend your days glued to your smartphone, a
risk of loss is also lessened, provided that you make mileage tracking app is for you. On the other hand,
You can find inexpensive paper mileage log books in sure to keep copies of the file in multiple locations if youre a technophobe or dont have a smartphone,
most office supply stores, as well as on e-commerce in case your computer crashes or you lose access you might want to stick with a paper logbook or
sites like Amazon.com. Despite differences in looks to your server. Obviously, you wont be typing on mileage log template.
and sizes, all mileage log books prompt you to fill out your laptop as you drive, so youll have to record the
the information you need to substantiate your mileage information after your driving is completed. Be sure
deduction. If you like keeping handwritten records to log your miles at least once per weekpreferably
or just dont want to interact with software or an app more often.
on your mobile device, a paper logbook maybe your
best option. However, there are downsides to using
them, including the risk of losing months worth of
records if you misplace your logbook. Moreover,
youll need to keep your logbook for at least three
years after you file your tax returns for the year it
covers. Paper log books can also be unwieldy, and
easy to forget to bring along on your drives. But the
biggest problem of all is that you have to remember
to record by hand the data for all your drives as they
happen, which can be difficult to do when youre 25
5 MILES
M S
focusing on all the other aspects of doing business.
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TIP # 9
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Bad Thing #3
You May Have to
Pay Substantial IRS Penalties
Failure to keep a proper
Far worse than having to pay interest on your tax
mileage log is routinely
underpayment, is the very real possibility that the IRS
will impose penalties as well. As the word implies, a
viewed by the IRS and Tax
penalty is an amount youre required to pay in order to
punish your for your bad conduct and deter your from
Court as grounds for imposing
being bad in the future. the 20% negligence penalty.
By far the most common penalty imposed by the IRS on
taxpayers who lose driving deductions due to failure to
keep mileage logs is the 20% negligence penalty. The
penalty is imposed where an underpayment of tax is
attributable to the taxpayers negligence or disregard
of the rules or regulations; or where the underpayment
was substantialmore than $5,000 or 10% of the propert
tax due. Negligence includes any failure to make
a reasonable attempt to comply with the tax code,
including failure to keep adequate books and records or
to substantiate items properly. (Internal Revenue Code
Section 6662.)
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MileIQ Automatic Mileage Tracker
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About MileIQ
MileIQ is dedicated to providing products and users drive without taxing battery life or requiring
services to support the 53 million independent any interaction, and our proprietary algorithms
contractors, consultants, real estate agents, and automate much of the classification and calculation
business owners that form the lifeblood of the U.S. of their drives. Integrations with FreshBooks, Concur,
economy. Our smart mileage-tracking technology and other popular accounting, expense and tax
alleviates a time-consuming administrative burden so platforms make it easy to report mileage, providing
users can focus on what matters to their businesses users with peace of mind and putting money back in
without having to forego the thousands of dollars their pockets. Download MileIQ for iOS on the App
in mileage deductions and reimbursements theyre Store or MileIQ for Android on Google Play. More
due. The MileIQ mobile app captures every mile information is available at mileiq.com.
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