OK, tracking mileage is probably not something you would do for fun, but it is an important aspect of reducing your tax liabilities.
What mileage counts
Mileage may be deducted if driven between one place of work and another, or when driving to a temporary work location if you have a permanent work location. For example, driving from your office to the store to pick up supplies is a deductible expense. For those with home offices, your home is also a place of work, but for most people driving from home to a place of work is considered nondeductible commuting mileage.
Did you know that you can also claim a deduction for medical and charitable miles? Medical miles include driving required to doctor’s appointments or to pick up prescriptions. Charitable miles only count when done for the benefit of the charity, so you can deduct driving while volunteering, but should not claim mileage to church services every week.
What’s the deduction?
The standard deduction established by the IRS is 50.5 cents per mile in 2008 (up from 48.5 cents last year) for business miles. Medical and charitable miles are only worth 19 and 14 cents respectively.
How do you take it?
The answer is “It depends.” (That’s the answer to almost all tax questions). In this case, it depends on whether you are a(n):
- Employee: use Form 2106, which generally flows to Schedule A. The deduction is taken only if it exceeds 2% of AGI so people with limited business mileage often don’t benefit.
- Sole Proprietor: use Schedule C, which deducts mileage directly from business income with no limits.
- Partner: if you are a partner, mileage can be reimbursed by the partnership or claimed on Schedule E as an unreimbursed partner expense.
- Corporate Officer: if your company is a corporation, it cannot deduct your mileage. You need to get a reimbursement from the company or report it as if you were an employee. Reimbursements are much better.
What are accountable reimbursement plans?
For corporate officers, an accountable reimbursement plan permits the company to deduct the expense of the reimbursement, but the reimbursement is not income to the officer/employee. Accountable means that you must provide documentation to the company proving your mileage. The reimbursement can be made up to the IRS standard rate, but can be less.
How do you track mileage?
Both the IRS and accountable reimbursement plans require documentation of mileage. While many people try to use percentages or estimates for mileage, the IRS is going to require proof or the deduction can be reduced or denied altogether under audit. In some cases, well-kept appointment books or calendars have sufficed, but the best evidence is a mileage log maintained on a daily basis. I recommend keeping a written log in your car; once you get into the habit of writing everything down, you’ll find that it doesn’t take much time at all. You can download a good mileage log template for Microsoft Excel from Microsoft Office Online. The same log can be used to track charitable, medical and business miles.
Categories: Tax News and Tips
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