Monday, December 14, 2009

Keeping a log of business mileage

Q I read the post about the Standard Mileage Rates for 2010. If I use the standard mileage rate, do I have to save my gas receipts, too?

A If you are using the standard mileage rate, all you need to keep is a log of your business-use miles. You only need to save gas receipts if you are deducting actual vehicle expenses (although you still need to keep a log).

Many small business owners fail to take full advantage of the deduction for business transportation expenses. Here's what you need to know to make sure you aren't missing this important deduction.

If you use your personal vehicle in your business, you can deduct the cost of driving and maintaining that vehicle. These transportation expenses include the ordinary and necessary costs of the following.

• Getting from one workplace to another in the course of your business or profession when you are traveling within the general area that is your tax home.
• Visiting clients or customers.
• Going to a business meeting away from your regular workplace.
• Getting from your home to a temporary workplace when you have one or more regular places of work.
• Other travel that is ordinary and necessary in your particular line of work, including travel to purchase supplies or other items necessary for your business.

You generally have the option of deducting the actual vehicle expenses or using the standard mileage rate to figure your deduction.

Actual expenses include depreciation (or lease payments), gas and oil, tires, repairs, tune-ups, insurance, loan interest, and registration fees. The standard mileage rate for business travel for 2009 has been 55 cents per mile; for 2010 the rate will be 50 cents per mile (reflecting the drop [?] in fuel prices).

If the vehicle is used exclusively for business and you are deducting actual expenses, you must save receipts.

If the vehicle is used exclusively for business and you use the standard mileage rate, all you need is the beginning and ending odometer reading for the year to figure your deduction: you do not need to save any receipts.

If you use the vehicle for both business and personal purposes, your deduction is based on the percentage of business use, and the IRS says you must keep a written log of the business use to determine and document the deduction.

The log can take any form that works for you – day planner, notes on a calendar, spreadsheet, or small notepad in the glove box. The key is to use it! The log should contain the date, number of business miles, and the business purpose of each trip.

The IRS has become increasingly picky about documentation for vehicle expenses. They can deny a deduction based on estimates. So I strongly encourage you to keep good records to document your vehicle expenses.

To start the year off right, make it a New Year’s habits to write down the January 1st mileage on each of your vehicles.

Notes: you can still deduct state and local personal property tax on the vehicle, parking fees, and tolls, whether you claim actual expenses or the standard mileage rate. Commuting for an employee is not deductible, but travel between two jobs in the same day may be.

Please contact me directly for a no-cost consultation to discuss your individual situation.