If you have started a home-based business as a means to save valuable tax dollars, you know the tax savings you can enjoy. You also know that in order to enjoy those tax savings with total peace of mind, you must keep good records and document everything. This is especially true when it comes to business miles deductions.
Did You Know…
You have a choice about how you can deduct automobile expenses. You can take “Actual” expenses, i.e. repairs, insurance, gasoline, property tax, etc., or you can deduct business mileage. If you choose to take expenses, you must keep track of mileage anyway to prove what portion of the expenses were for business. Because it is such a hassle to keep track of the odometer reading before and after each trip for business purposes, many people just don’t do it — they either guess at the end of the year, or just take all their auto expenses, whichever can save them the most money. While the IRS audits fewer than 2 percent of all taxpayers, this one deduction, if taken improperly, can cause severe civil fraud penalties, the disallowance of all deducted business miles and additional fines.
Even though tracking auto mileage may seem to be a hassle, it really doesn’t have to be. With the “90-Day Rule” the IRS allows anyone the convenience of keeping track of business miles for only three months each year, and then multiplying by four. Any three consecutive months of the year may be used so long as your business travel does not vary drastically. We must strongly caution, however, that these three months must reflect a typical example of travel for the entire year.
This method of tracking makes it 75 percent easier and should allow you to sleep better after filing your taxes. You can have total peace of mind by:
- Knowing the rules on auto deductions.
- Keeping track of all mileage for at least three months of the year (if you travel consistent patterns).
- Documenting all miles using a tax diary.
What’s It Worth?
When these money-saving secrets are put into practice, you will find even more tax savings as you learn to track your mileage to your children’s activities like soccer tournaments, church activities, Boy Scouting, etc. These miles, though not business related, are deductible under charitable contributions. In our experience, this specific attention can save as much as $2,000 in taxes annually.