1. In order to deduct business related vehicle expenses when driving from your home, your home must be your principal place of business. This entails your having a qualifying home office. Please review the attached document “Home Office” for details on the requirements for a qualifying home office.
2. If your principal place of business is your qualifying home office, you may deduct the cost of round-trip transportation between your qualifying home office and your clients’ or customers’ places of business.
3. If you do not have a qualifying home office as your principle place of business, you are not allowed to claim miles driven between your home and first business location/stop and miles between your last business location/stop to home. Transportation expenses between your home and this first business contact are nondeductible commuting expenses. Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. While you cannot deduct the costs of these trips, you can deduct the costs of going from one client or customer to another.
4. Should you not have a home office that meets the requirements, we recommend that you plan your driving route(s) to maximize your deductible miles. For example, if you own a rental property which is located ten miles from your home and you need to pick up supplies from Lowe’s which is a mile and a half away, go to Lowe’s first and then drive to your rental property. Lowe’s would be considered your first business stop so miles between your home and Lowe’s would not be deductible. Miles driven between Lowe’s and your rental property would be deductible.
5. It is important that you keep records of your business miles. There is a smart phone app (MileIQ) that you might find helpful in tracking your business miles. If you are audited, recreating mileage records after the fact may not be considered adequate substantiation. It is important that you keep detailed, accurate records of your business miles.
6. For income tax reporting purposes, we will expect you to provide us with the following information: A description of the vehicle, date placed in service, business miles driven for the year, total miles for the year, commuting and/or other miles. We will also ask you the following questions: Do you have another vehicle available for personal use? Do you have a vehicle available for use during off-duty hours? Do you have evidence to support your mileage deduction? Is your evidence written?
7. It is important to remember that if you use the standard mileage rate to calculate vehicle expenses, you must choose this method in the first year you use the car for business. In later years, you can choose to use the standard mileage rate or actual business related vehicle expenses. If you do not use the standard mileage rate in the first year, you are not permitted to use that method in future years. If you decide to use actual vehicle expenses, it is important to track your business and total miles so that we can determine the business use percentage of your vehicle.
We are available all year to answer any tax, retirement or other general financial questions you may have.
johnbarrycpa.com • Twitter • Facebook • firstname.lastname@example.org • (828) 264-5500