Let's talk business miles! How does the deduction work? What counts as business miles? How can you track them? What's the best app, or do you need one at all?
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The actual method - allows you to deduct the business use percentage of actual auto expenses including gas, maintenance, insurance, and lease payments or depreciation (a specialized calculation of the cost of your vehicle over time). The business use percentage is found by tracking all miles and dividing business miles by total miles driven.
The standard mileage - allows you to deduct 57.5 cents per business mile driven. This means that for each 2 miles you drive you can deduct more than $1 worth of income and save money on your taxes. This adds up!
I recommend the standard mileage method because it's less complex and less likely to get audited if you're doing it yourself. If you're working with an accountant, it's a good idea to ask them which one is right for you and exactly what you need to do to take the deduction.
My recommendation is based on the fact that my audience is mostly solopreneurs who might still be DIYing their taxes, and this way is the least likely to mess up while also still saving you money in taxes.
Tracking your miles is simple. You just need to note the date of your trip, where you went, the business purpose of the trip, and the miles driven.
When you get the Small Biz Starter Kit, a downloadable mileage log is included that can be accessed on your smart phone and allows you to easily track miles without needing to pay for an app. It does all the calculations for you, whether you choose the actual method or the standard mileage.
The best time to log miles is when they actually happen so you don't forget or have to go back and figure it out later. I drop my destination in my GPS and take the calculation from the round trip and drop them in my mileage log and then forget about it until tax time when I can take the information off my log and use it to save money in taxes.
Simple! Anything that you're doing for business!
Commuting does not count as business miles. Commuting is going from your home to your regular place of work. So if you rent an office or work for one client and make the same trip daily, unfortunately that is not counted as business miles. Traveling between clients or to different clients does count.
If you're choosing the standard mileage method, you don't pay for gas, oil changes, auto tag renewals, or car payments from your business. Those are all included as an estimate in the 57.5 cents per miles that you are allowed to deduct and claiming both can get you in trouble.
What is NOT included in the standard mileage rate that can be included is parking and tolls so be sure to pay for those from your business account when traveling for business.
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Be sure to sign up for my free monthly membership to get monthly tax deadlines and bookkeeping reminders sent straight to your inbox to help you stay on track all year long and never miss a deadline.
BUT THAT LEADS TO...
💰Getting hit with hefty penalties and interest
⌛️Wasting your valuable time
🤯Stressing out over handling the mishap
🥴Lacking insight on how your business is doing and thus making poor business decisions.