When you know the rules related to business mileage, you
- protect yourself in the event of an IRS audit, and
- pay less tax.
Take Joe, for example. Before he knew the mileage rules, he deducted 30 percent of his SUV’s cost. Once he learned the rules, he deducted 92 percent.
Or look at poor John—he lost almost all his vehicle deductions in an IRS audit.
Be like Joe. Here’s how.
Create An Administrative Office For Your Business In Your Home
Personal mileage means death for business vehicles. Kill personal mileage. Install the right type of home office, called an administrative office. Installation is pretty easy. See Home Office Deductible? Prove It!
Know the business mileage rules
Here is your four-part quiz:
Question 1. To help manage your business, you have an administrative office in your home that you deduct on your taxes. To deduct the trip that takes you from your home to your office outside the home, you must first use your office in your home. Thus, you need to go into your home office and make a phone call or boot up the computer and check your emails so that you can deduct your trip from your home office to your downtown
office. True or false?
Answer: False. You don’t need to do anything in your home office before going to your outside-the-home office, assuming both offices are for the same trade or business. The fact that you have a principal office (your administrative office) inside the home means the trip from your home to your office outside the home is deductible.
Question 2. You have no deductible office in the home, but you do have an office outside the home. And one day you stop at the grocery store on the way to your outside-the-home office to buy cleaning supplies for your office. You may deduct the mileage from the grocery store to the office as business mileage. True or false?
Answer: False. Your trip from your home to your regular office is a personal commute. The grocery store does not meet the “temporary work location” definition, as this was not a place where you performed services. Thus, on this trip, your only business mileage is that mileage to and from the grocery store for business supplies that is in excess of your normal commuting mileage.
Example. Your trip from home to your office is 5 miles, but when you make the grocery store stop, the trip is 9 miles—three miles to the grocery store and then 6 miles to the office. Thus, you have four business miles (9 minus 5).
Question 3. You have no office in your home that you can deduct, but you do have an office outside the home. While you are at home, you remember that you need a new printer cartridge for your office printer. You jump in your vehicle and drive to and from the office supply store, where you buy a printer cartridge. This trip produces deductible business mileage. True or false?
Answer: True. Here, we hang our hat on two rules. First, because you have an office outside the home, the IRS allows business mileage for trips to temporary work locations. Although the office supply store does not rise to the level of a temporary work location for performing services, you have no reason other than business to make this trip. Therefore, this mileage should qualify as “ordinary and necessary” business mileage.
Question 4. You operate your business with no office that you can deduct. That is, you have no deductible office in the home and no deductible or other office outside the home. Your round trip from your home to a business meeting downtown is not deductible. True or false?
Answer: True. The no-office taxpayer incurs a personal non-deductible commute to his or her first business stop and from the last business stop back home. In this case, the business meeting is both the first and the last stop, and it produces only personal, non-deductible commuting mileage.
Document your mileage
Mileage is the only acceptable method for determining the business and personal use of your vehicles. Make certain that you know when a mile is a business mile and when it is a personal mile. And it doesn’t matter if you are taking mileage or actual expenses, you must have a written log!
There are two reasons to know the mileage rules:
- Knowledge of the rules can add big dollars to your tax refunds.
- Without knowledge of the mileage rules, in an IRS audit, you first lose deductions and then experience an increase in audit scope, because the IRS is now aware that you don’t know what you are doing.
Takeaways
- When you know how to increase your business miles, you can add substantially to your bottom line.
- Think of it this way: You are going to drive your vehicles where you want to drive them, regardless of the rules. That’s the way you operate, whether for work or in your personal life.
- Now, let’s step back and look at where you drive. What rule can you apply to turn as much mileage as possible
into business mileage? - You have to take a serious look at the possibility of creating an administrative office in your home. The administrative office simplifies the rules on temporary stops, and it eliminates commuting from your home to your regular business stops.
- In perspective, the administrative office can make your business mileage simple, easy, and profitable.
- Finally, on every business and personal use vehicle, you need a mileage log—period.
If you have questions about your business vehicle, please don’t hesitate to call me on my direct line at 509-543-7600 or send a request HERE.
May 2021
This blog does not provide legal, financial, accounting, or tax advice. This blog provides practical information on the subject matter. The content on this blog is “as is” and carries no warranties. TaxMedics does not warrant or guarantee the accuracy, reliability, and completeness of the content on this blog. Please contact us directly to discuss how this information may be used based on your actual facts and circumstances.