Donna Genie breaks down two ways to deduct car expenses: the IRS standard mileage rate (54.5¢ per mile in 2018) or actual costs like gas and repairs. Most sedans come out ahead with the standard rate. You need to track date, miles, and business purpose, and commuting doesn't count unless you have a home office.
Hi there. I wanted to talk to you about automobile expenses. We get a lot of questions about the best methods for keeping track of mileage. So let me share some of those with you and tell you how the auto expenses deduction works. First off, auto expenses can be tracked in one of two ways. Actual costs, or using a standard mileage allowance that is set by the IRS each year for 2017. I've got a chart here showing you how much the AAA survey shows that it costs to operate a vehicle. Now, for most people, if you have a small or medium sized sedan, a normal car with decent gas mileage, you're probably better off with the standard mileage allowance. The standard mileage allowance for 2018 is 54 and a half cents per mile. So you can see with the costs here, you're better off there. If you operate a large vehicle that uses a good bit of gas, or maybe an older vehicle with a lot of repairs, you may be better off with actual expenses. I'll explain what that means in just a moment. So, with actual expenses, you'll be tracking all of the costs of operating that vehicle for the entire year, all of the gasoline, the repairs, the insurance, any types of replacement of tires, or anything that you might do to that vehicle. And then what we do at the end of the year is we take your total miles that you drove on that vehicle and your business miles on that vehicle and come up with a percentage that is applied to those expenses. Now, that's a lot of tracking. You do have to keep up with all of the individual expenses on the vehicle. Some people don't find that it's worth it for that small difference and would prefer to use the standard mileage allowance. Again, for 2018, this is 54.5 cents per mile. The IRS adjusts that each year, depending on primarily the cost of gas, but also all of the expenses and cost of living that it takes to keep that vehicle in place. Now, how do you document your mileage? If you want to do this in a manual fashion, you'll need to be able to document for your mileage the date, how many miles you drove, where you went, and what your business purpose was for that travel. You can use something as simple as a piece of paper, an Excel spreadsheet, or you can use GPS documentation through an app or a calendar to keep up with that information. But in either choice of methodology, you must have this information in order to deduct your automobile expenses. Now, for accounting purposes, you'll submit that mileage each month to us on an expense report. We'll take care of the details of how we record that internally, but you will get credit back for that mileage each month. It's important that you do that on a monthly basis because it can skew the entire year when we're doing tax planning, if that only gets recorded once a year. And Also, technically, the IRS requires that all reimbursements be applied for within 60 days of the actual expense. So do yourself a favor, keep up with that on an actual basis each month. Now, I highly recommend using an app that we love to keep track of this. It's a small cost and will really take care of all the headaches. It's called Mileiq. And Mileiq will offer a discount to any of our clients. So let me pull over the website for just a moment for anybody here. If you go to our website and you click on the client area, you'll see a sign up for Mileiq is included in the link. And this will give you our discount code so that you'll automatically get a discount. It's something like 49 $59 for the entire year and it will run on your phone and track your mileage for you all throughout the month. Then all you need to do is code which ones are business or which ones are personal. And it can even remember common places that you go and automatically categorize those for you. It'll generate a report each month that you can submit as your expense report. Take care of all the headaches. So again, check that out through our web page. You'll get a little discount through there and keep that on your phone and that will help you take care of all the headaches of tracking your auto expenses. Also, one last thing. Keep in mind, commuting miles do not count. If you have a home office though, and you qualify for that, then there is no commuting. So your commuting miles from home to the office or to your place of business are not deductible unless you qualify for a home office. Okay. If you have any questions on that, please feel free to let me know. Thank you.
