Business travel has always been a godsend when it comes to writing off expenses. Whether you’re driving out of town or you’re all around the area you work in, being able to write off mileage has always been helpful in reducing your taxes.
With that said, something most people might not know is that the rules have changed when it comes to tracking your driving expenses. It might feel like a nightmare because there’s more paperwork while you’re doing it, but come tax time you’ll still get a nice benefit, even if it’s a bit dicier than it used to be.
If you’re self employed, the first thing to know is that you’re supposed to keep track of where you’re leaving from and where you’re going. If you’re driving from Syracuse to Buffalo, it’s not good enough to put that mileage down. You’re supposed to notate exactly where you’re leaving from and where you’re going. If you’re still in Buffalo a few hours later and decide to go to a restaurant, you’re not supposed to track the mileage to get there, because if it’s still related to business you’ll be writing off your food expenses; you’re not allowed to double dip write-offs.
If you’re heading back towards home, you can use the same mileage figure you used going to Buffalo, even if once you’re back in your home area and decide to go to a few other places before going home, you’re safe with the mileage because overall it’ll be less mileage than tracking everywhere else you’re going. Truthfully, if on the way home you decide to deviate further, maybe a quick trip to a casino, a lake visit or anything else, as long as your eventual destination is home just use the same mileage as you did when you left home originally. The government doesn’t want to know everywhere you’ve gone, just the actual mileage pertaining to the trip.
If you’re an employer and you’re paying for someone else’s mileage, there’s a few ways to handle this:
* Actual mileage expenses. This means employees retain all receipts and other documentation related to cost of owning and operating a car each year. This won’t cover maintenance unless it’s contracted or there’s an accident while the person’s driving during working hours.
* Standard mileage deduction. This means that employees have to maintain a business log of mileage.
* Paying employees for mileage. This is relatively new, but it’s important for employees to know about it. If you’re paying them hourly to use their own car, but they’re driving all around the area, and you’ve got the right program on your computer, you can track mileage by typing in all the locations they’ve been to, starting and ending the day at your home location, unless they don’t actually have to come back every day. You put in the address of each location, and the computer will calculate it for you. The employee will be paid the area mileage rate, tax free, and the business gets to write that off.
* Employees are using your vehicles. In this case, it’s the company’s responsibility to track an employees mileage, being as accurate as possible, since the employer will be writing off all driving expenses.
* Employees or contractors driving their own vehicle over a long period of time. If you’re running a consulting company and you’ve contracted with others to work assignments out of town, most of the time they’re using their own cars. Since they’re not employees, might not know the area they’re working in, has to fill up the vehicle more than once while on the job and might put on more mileage than expected, all you’ll need is a record of the total number of miles the consultant drove on the assignment, whether it’s a day or two or a few weeks. It’s non-taxable for them, but the employer can write off what they’ve paid the consultant for mileage, which ends up giving them a higher tax break in the long run.
* Employees or contractors renting vehicles while out of town. This last one is easy. Wherever the vehicle is rented, the rental agency will track all mileage the car’s used if necessary, and they’ll bill the employer for it. Not all rental agencies will track by mileage for out of town contracts, but even if they do they’ll tell the employer how much mileage was used so they can write it off.
Most businesses already know most of this, but it’s good to have a refresher at least once a year to keep up with the latest tax implications.
T L Wall Accounting Blog
