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Most small business owners and self-employed professionals know that they SHOULD track the miles they drive for business, yet few actually do a consistent job of keeping an accurate mileage log. With the 2016 IRS mileage rate set at 54 cents per mile, this is a tax deduction that can add up to big money quickly. In fact, a recent study by MileIQ found that the average person who uses their personal vehicle for work deducts more than $6,000 per year in mileage.
Start 2016 off right by avoiding these mistakes, by keeping an up-to-date mileage log and putting thousands back in your pocket at tax time.
This one is obvious, and it’s the most common. Often, many small business owners 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.
Also, 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 – 54 cents doesn’t sound like that much money, but those miles add up fast
Only Tracking Longer Drives
Here’s another problem people have when tracking their mileage: only bothering to log the longer drives they make – client visits, conferences and job site visits, etc… But they don’t bother logging the shorter trips, say to the post office or to the office supply store.
Take a look at your past logs. Did you document your drives to the coffee shop to bring your client a coffee for a meeting? What about 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 54 cents per mile this equals serious money. Think about it another way: if you drive to a business errand that is one mile away, that’s two miles roundtrip – and $1.08 tax deduction.
Now that we’ve established that business mileage is a hugely valuable tax deduction, let’s move on to the third major mistake – not keeping a “contemporaneous” log.
What 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.
The problem with that, of course, is remembering where you drove and when, and ensuring that you capture all of your drives. Just missing a few short drives per week can add up to thousands in lost tax savings.
You’ll avoid problems with the IRS and maximize your deduction if you record your business miles each day. You can stick to pen and paper, but it’s much easier if you use an automatic mileage tracking app like MileIQ to automate the process and record each drive as it happens. (Alert: There’s a FREE trial on the MileIQ app at the bottom of this post and a SmallBizLady discount for my loyal readers.)
Not Having a Home Office
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 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 take the home office deduction.
You can deduct ANY driving you do for business, as long as it’s not your commute and you weren’t reimbursed for it. 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.
Special Offer
MileIQ has offered my SmallBizLady readers a 20% discount, to help you maximize your mileage deductions in 2016. Try it free for 40 drives, and when you’re ready to upgrade, use promo code SmallBizLady20. (Instructions for using a promo code)