While watching my youngest son’s soccer practice today, one of the mom’s came over and asked “You’re a CPA, right?” Of course I answered yes. She then asked “what is the best way I can track her mileage?”. A simple question that many business owners and entrepreneurs I come across have asked me. Not so much a simple answer since there are many rules around business mileage but I wanted to keep my explanation simple in this case.
If you use your vehicle for business purposes, you can generally deduct this as a business expense using one of the following methods:
(1) Standard mileage rate
(2) Actual car expenses
The standard mileage rate for 2012 is currently 55½ cents. If you chose to use the standard mileage rate for a car you own, you must chose to use it the first year the car is used for business. In later years, you can chose to use either the standard mileage rate or actual expenses. There are some instances where the standard mileage rate is not allowed, such as:
(1) Use five or more cars (as in fleet operations)
(2) Claimed a depreciation deduction using any method other than straight line
(3) Claimed a section 179 deduction
In addition to the standard mileage rate, you can also deduct any business related parking and tolls.
If using the standard mileage rate, you will need to provide a listing of the following for each business trip:
(1) Total mileage for the trip
(2) The dates of each trip
(3) The reason for each trip (who and why)
I personally use the standard mileage rate. I track my daily mileage in a small notebook and once a week I update an Excel spreadsheet that calculates my business mileage expense.
If you chose to use the actual car expense method, a few of the expenses to include are:
(6) Registration fees
If you use your car for both business and personal use, you must divide your expenses between business and personal use. You can determine each by using the miles driven for each purpose.
Example: You are a software sales rep and drive your car 50,000 miles during the year: 30,000 for business and 20,000 for personal. You can claim only 60% (30,000/50,000) of the cost of operating your car for business purposes.
If you are unsure as to which method would provide you with the largest amount, my suggestion is to use both methods the first year and use the one that results in the larger amount at tax time.
This is a simple explanation to this question and there are always exceptions and other rules that apply so I suggest you speak to a CPA before you decide on which method to choose.