QUESTION: Can you take mileage as a tax deduction?
ANSWER: Yes, but…
If you use your vehicle to travel around for work, you are able to take a flat rate for each mile you put on your car as a tax deduction. However, there are certain considerations to be sure you are aware of first.
- Be sure that it is not commuting miles – miles to and from your home and the first or last place of work are considered commuting miles and cannot be taken as a deduction. IF you have your own business and you have an office in your home (used exclusively for business purposes), then that is considered your first and last place of work and miles to and from here are considered deductible.
- Keep good records – the IRS is very picky about the records of your mileage if you are ever selected for review or audit. The law is clear that good records must be kept and markings on a calendar or directions from Google are not sufficient to justify your mileage as business mileage. We will look at the record-keeping in more detail in a moment.
- It may not be the best way – you may be able to get an even better benefit than a tax deduction for your mileage. The IRS 2019 mileage rate is 58 cents per mile. If you are in the highest (37%) tax bracket, this means you save 21.46 cents for each mile driven (1000 miles = $215 savings). However, if you work out an accountable reimbursement plan with your employer (which is surprisingly easy to do if you own your business!), then you can save even more. Say you drive the same 1,000 miles but you get a reimbursement for only half of the IRS rate (29 cents per mile). You now have a reimbursement of $290, and it’s tax free to you! However, you STILL must keep good records, because the IRS can also disallow this plan without them. Let’s take a closer look at record-keeping.
Ideally, the best practice for keeping your mileage is to have not only the miles driven, but also the date, location(s), odometer readings and business purpose of the trip. You may also want to include any other business expenses of the trip. While odometer readings aren’t necessarily required, they can be considered by the IRS. Here’s an excerpt from the IRS manual where the IRS tells its examiners to look at odometer readings to verify total miles for the year:
“To verify total miles for the year, the taxpayer should provide repair receipts, inspection slips or any other records showing total mileage at the beginning of the year as well as at the end of the year.” -Internal Revenue Manual
So, per their own internal manual, the IRS considers the request for odometer readings a reasonable request. You may be able to avoid this if you have adequate proof of mileage apart from the odometer, but you may also avoid a lot of headache by keeping track of the odometer as well.
Here’s an example of tracking mileage on paper with odometer readings:
Starting mileage: 47,358
Ending mileage: 47,377
Trip mileage: 19
Where and Why: client, Jones, about Westfield job
Meals expense: $37
You shouldn’t have any problems with this kind of record-keeping. You can also use this mileage and expense log to help record the details.
Apps for your phone are also excellent, and much easier for recording your mileage. If you use the GPS in your phone with the app, it can also track you location as you drive around. While these apps can track your mileage and do it well, they won’t necessarily give the odometer readings, purpose or amount spent, depending on your app.
No matter what, you need to keep good records in case of any audit or IRS review, and the more you travel or spend on meals, the more you need to have good records. If the IRS were to disallow these expenses, you could end up with a very hefty tax bill that they will be sure to add interest and penalties to as well.
Hopefully this helps you adequately prepare. Even though we are in the middle of the year, it is still a good time to make sure your records are adequate and accurate. Stay wise!
-Heritage Accounting and Tax Services