Methods for Figuring the Deduction of Your Business Driving Costs

Dateline:  December 2011

If you drive your personal car or truck for business, be sure to know the rules for 2011 so you can maximize your tax deduction for the cost of this driving.

Methods for Tracking Expenses

There are two ways in which to figure the deduction of your business driving costs:  the actual expense method or an IRS-set standard mileage rate.

• Actual expense method.  Keep receipts for all of the costs associated with driving for business.
• Standard mileage rate.  Instead of keeping records, use this rate to figure the deductible costs.  The standard mileage rate takes the place of tracking the cost of gasoline, oil, repairs, lease payments (if you lease), depreciation (if you own), and other car-related expenses.

The standard mileage rate for 2011 was set by the IRS at 51¢ per mile for the first six months of the year.  Thus, if you drove 15,000 miles for business during this time, your deduction for business use of your car will be $7,650.  This rate applies whether you drive a low-priced Kia or a high-priced Mercedes.  The mileage rate in effect for the second half of the year is 55.5¢ per mile.

Whether you deduct driving costs using the standard mileage rate or actual expense method, you can also separately deduct parking fees and tolls.

Suggestion:  Since you won't know until the end of the year whether the actual expense method or the standard mileage rate gives you the greater tax deduction, it's wise to retain receipts for car-related expenses (even though they are not required for the standard mileage rate).

Recordkeeping

Regardless of which method you opt to use to figure your deduction for business driving, you must keep a record with certain information about your business driving.  The record should be made at the same time of each business trip and indicate:

• The date of each trip
• The odometer reading
• The purpose of the trip
• The destination

Start the new year off right by recording yoru odometer reading and maintaining records faithfully throughout the year.

How to keep a record for tax purposes:

• Keep a log book and pen handy in your car, purse, or briefcase to note your driving information each time you use your car for a business trip.
• Use an App on your smart phone to create a record.  (Example:  Intuit's Tap2Track - www.tap2track.com/).

Sampling.  There's a shortcut for recordkeeping, called "sampling," that is buried within IRS regulations.  Sampling enables you to use a sampling of your driving for a period of the year to extrapolate your annual driving.  For example, you can keep a record of all your driving for the first week of every month and use this to determine your annual driving.  However, you can only use sampling if your driving during the sample period is representative of your driving for the entire year.

What is Business Driving?

Don't overlook mileage that may have a business purpose.  Factor in driving to:

• See customers, clients, and vendors.  But travel from your home to another location (and back again) is a business trip only if you claim a home office deduction
• Make buisness deposits at your bank
• Mail business packages at the post office or delivery service
• Purchase business supplies at an office supply company
• See us or to visit your attorney and other business advisors