No, Your Accountant Doesn’t Want Your Gas Receipts: Why You Should Record Business Travel Using Standard Mileage
When tax time rolls around, clients often ask if we want their shoebox full of gas receipts. The answer is typically no, thank you. Although you can use your business account to cover the cost of gas, that is not typically how the write-off trickles down. But we still give you points for being dedicated.
You have two choices when writing off auto expenses. Actual or using the standard mileage rate. Just make sure that whatever you choose, you're willing to stick with it for the life of that vehicle.
If you choose to claim actual expenses, you still need to track your mileage because it is used to calculate the business percentage use. So 10,000 total miles with 4,500 of those earmarked for business would mean 45% business use. The next step is to apply that percentage to all the actual out-of-pocket expenses for the vehicle, such as interest on your auto loan, registration fees, repairs, maintenance, etc. A great example of someone benefiting from the actual is a remodeling contractor who parks their box truck at the job site for the duration of the project.
If you choose the standard mileage rate method, you simply track your business and total mileage for the year. Your deduction would be the current mileage rate times the number of business miles. For instance, the rate for 2021 is 56 cents which is within the typical range of 56-58 cents. As an example, mileage would be best for a real estate agent who racks up the mileage with constant travel to and from showings.
Note: Parking and tolls stand alone and should not factor in here. You can write those off using either method. And don't stress if you suddenly realize you've been tracking your mileage the wrong way because decisions can be made at tax time. If you are unsure, use this worksheet to track it all, and we will help you decide. http://tslnh.com/wp-content/uploads/2021/01/Auto-Worksheet-2.pdf
The good news about choosing either of these methods is that you don't need those pesky mileage logbooks from the office supply store. Just make sure you have a system that works for you. Some will simply make notations on the paper calendar or datebook that they are already using. Some leave a notebook in the vehicle and fill in the details every time they stop to refuel. Some will use one of the many apps out there. If you use an app, be sure to make notations about where, why, and who in case you ever need to prove that travel was, in fact, for business. Also, be sure to capture some type of report at the end of the year, download a PDF and keep it safe with your taxes. If you are ever audited, you will be asked to detail where you've driven and prove why it was for business.
And PLEASE do not fall for the dealership advertisements that come out at the end of every year boasting there are extra write-offs for depreciation. That is one part of the actual expenses...one that can get folks into trouble. Depreciation is a fancy word that means the cost of the thing is spread out over time. Typically you would depreciate a vehicle for five to seven years. The dealerships are implying that you would write off the entire vehicle in the first year. So if you were to sell or total that vehicle in year two or three, you'd be paying taxes on it. You would also likely be paying an auto loan for years to come without the benefit of the write-off. In some cases, this is a great tax planning strategy. In most cases, mileage is the way to go.
As any good accountant would tell you, it all depends on your specific situation. So schedule some time with us today, so we can learn about yours and get you set on the right path.
