As a small business owner, you may use your personal vehicle to make sales calls, visit customers, buy supplies and attend meetings. According to the IRS, if you are using your car for business purposes, you can deduct these expenses on your taxes. Here's how to record and calculate your driving costs per mile in a manner that will satisfy an IRS audit of your business.
- Skill level:
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Things you need
- Pencil or pen
Buy a small notebook and stash it in your glove compartment. Whenever you drive your vehicle for a business-related activity, write in the notebook the date, purpose of the trip, starting mileage from the odometer (e.g., 55,462) and ending mileage from the odometer (e.g., 55,482) and total trip miles (e.g., 20 miles).
You may also wish to include any parking charges or tolls in your log at this time.
At the end of the tax year (usually the end of the calendar year), review your log and add all of the business-related mileage you put on your vehicle.
View the IRS mileage allowance by going to http://www.irs.gov and viewing "Publication 463: Travel, Entertainment, Gift, and Car Expenses." Under the chapter labelled "Transportation," read the Standard Mileage Rate section. This section defines how much per mile you can claim for a business deduction. For example, in 2009 the rate was 55 cents per mile.
In some years where gasoline prices fluctuate greatly, the IRS mileage rate changes depending on the month of the year. For example, in 2008, the rate was 50 1/2 cents per mile from Jan. 1 to June 30, and 58 1/2 cents per mile for July 1 through Dec. 31. If this is the case, make sure you have detailed your mileage totals by month.
Enter the dollar total for all business mileage on your tax forms. For sole proprietors using schedule C, enter the total on line 9 and complete Form 4. Review the IRS publication 463 for more details if you are not a sole proprietor, using schedule C.
Calculate Your Costs Per Mile
Tips and warnings
- Always keep the log in your vehicle so you can easily enter your odometer readings.
- If your vehicle is only used for business (not a mix of business and personal use), these calculations may not apply to you. Consult an accountant or see IRS publication 463 for more details.
- From the IRS publication 463, "If you use the standard mileage rate for a year, you cannot deduct your actual car expenses for that year. You cannot deduct depreciation, lease payments, maintenance costs, oil, insurance, or vehicle registration for that year." Consult an accountant on where the standard mileage deduction is suitable for you.
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