Do you drive in the course of running your business? If so, there’s a tax benefit you might be able to take advantage of. The miles you put on your odometer or the cost of using your car for the following types of drives can be deducted from your business taxes:
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Drives between offices – If your business has more than one office, you can deduct the cost of driving between the different places you work.
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Drives between job sites – Some businesses, like home service contractors, often have multiple jobs taking place at different locations. Like offices, the cost of driving between job sites is deductible.
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Drives to and from client meetings – You can deduct the cost of driving to meet your clients, whether it be at their home, place of business or another location, like a restaurant or coffeeshop.
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Drives to and from the airport (or other places you travel from) – The cost of any drives you make to take more extensive travel for business, like to an airport or train station, can be deducted.
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Drives to run business errands – Any driving you do to pick up supplies or take care of other tasks for your business is tax deductible.
By and large, any costs you incur when driving in the course of running your business can be deducted from your taxes. However, one of the biggest mistakes business owners make is also including the cost of driving between their home and where they work. The IRS clearly states that commuting to and from your home is not business travel and cannot be claimed as an operating expense. That being said, there are two exceptions to this rule.
You have a home office
If you run your business from home, commuting to and from your residence is the same as driving between offices. However, the area of your house you work from must meet the IRS requirements for a home office. You can learn what qualifies as a home office for tax purposes in this blog post.
You’re commuting between your home and a temporary office
This IRS allows you to deduct the cost of driving between your home and a temporary work location that is not your primary place of business. You must work from the location for less than a year for it to be considered temporary.
Calculating your vehicle deduction
You can determine your vehicle deduction using the standard mileage rate or by calculating the actual expenses associated with using your car for business purposes. There are some restrictions to which method can be used by certain businesses that are outlined on the IRS website.
Standard Mileage Rate
The standard mileage rate is easier to calculate and often comes out to a bigger deduction. Using this method, you can deduct 54 cents for each mile you drive for business purposes this year (note that 54 cents per mile is the 2016 rate).
Actual Expenses
Your other option is to calculate the actual expense of using your vehicle for business purposes. Using this method, you add up the annual costs of gas, maintenance/repairs, insurance, registration fees, and depreciation in order to determine your total vehicle costs for the given year. You then figure out what portion of your total mileage is attributable to business travel and take that percentage from the total annual vehicle cost to determine your deduction.
If you have a dedicated vehicle that is used solely for your business, figuring out your annual business mileage is simple. All you need to do is subtract the mileage on the odometer at the start of the year from the odometer reading at the end of the year. The difference is your annual mileage.
If you have a vehicle that you use for both business and personal means, tracking your annual business mileage is more complicated. You’ll need to keep the miles you drive exclusively for work separate from the miles you drive for personal reasons in order to have an accurate vehicle deduction. The good news is there are a few good mobile applications that use GPS to track and log miles driven for business purposes.
BookKeeping Express (BKE) can help you track your expenses and prepare for your tax filing. Visit our features page to learn more.