Unless you only work out of your home office, there could be a whole lot of driving going on for your business. All this driving can really rack up the expenses and if you track them thoroughly, you’re eligible to take a very helpful deduction.
Now that I have your attention, read on… This deduction will help reduce your taxable income, which will reduce the tax owed at the end of the year. The downside: it takes a little work to track.
Here’s the skinny on the two options available when it comes to deducting car and truck expenses:
The first option is pretty obvious. You start by tracking the actual expenses you incur to operate your vehicle for business purposes – hey, running out to get more latte’s won’t cut it! You need to keep tracking only things like gasoline, oil changes, lease payments, insurance, registration fees, tolls, parking fees, tires, repairs, depreciation, and garage rent. You can handle that, right?
This option does not include down payments or monthly payments for a car loan but you can deduct the business use of your lovely vehicle’s expenses listed above. So, grab a pencil and paper or your favorite spreadsheet program and let’s get a handle on how much is for business use. It’s all in the tracking of your business versus personal trips and that can be figured out by tracking your mileage. Stick with me and I’ll explain the details of how to do that in a minute.
If you aren’t into all that tracking, don’t fret it. Here is that second option I told you about: Just take a deduction based on your mileage. One caveat… If you want to use the mileage deduction, you must use it in the first year of business. After that first year, you can then switch between the two methods.
In 2014, the deduction is $0.56 per business mile. The frosting on this cupcake is that you can also add on parking fees and tolls. For example, you’re meeting a client at a local coffee shop downtown. You can count the miles to and from the coffee shop as well as money paid to the parking meter.
What should you keep track of on your mileage log? You’ll want the trip’s date, destination, business purpose, and mileage to and from your starting location. You can keep a log book in your purse or car, but I’ve found that using an app on your phone can be just as effective because it uses your phone’s GPS. You just tell it when to start recording mileage and when to stop. My favorite app is TripLog and it works on Android and IOS.
All of this may seem like a lot of work, but it’s worth it in the end!