Wednesday, June 22, 2016

Don't Leave Money On The Table: Deduct Mileage On Your Taxes!

I know tax time has passed, but I wanted to pass along one more tax tip that you can use all year long: The government allows you to deduct auto mileage on your federal taxes and many states do as well. If you have driven your car for business and have not received reimbursement for that mileage from your employer, you can deduct the costs from your taxes. That's fairly straightforward. However, most people (outside of those in the delivery industry) typically don't drive their own cars for their employer or, if they do, they usually receive some form of reimbursement for it. But did you know you can deduct mileage for other reasons?

Two More Ways To Deduct Mileage

Tax law also allows you to deduct mileage expenses incurred for medical reasons or charitable purposes. This means you can deduct the mileage for driving to the doctor's office or to the dentist. If you do any driving for charity - perhaps delivering supplies to a homeless shelter - that mileage can be deducted too. Taking a bunch of old clothes to Goodwill? Track your mileage and deduct it!

The Deduction Rate Varies

The amount you can deduct varies depending on what the trip was for - business, medical, or charity. The rates also vary each year to account for the fluctuating price of gasoline and other automotive expenses such as depreciation, maintenance, and licensing. For 2016, the IRS has set the standard mileage deduction rates at:

  • 54 cents per mile driven for business
  • 19 cents per mile driven for medical
  • 14 cents per mile driven for charity
Also, if you have to pay any parking fees or road tolls while driving, those are also deductible.

(I will note those rates are for the standard mileage deduction, which means the IRS comes up with the figure based on estimates for gas prices, vehicle depreciation, oil and tire changes, etc. If you want to, you can deduct the actual expenses, but that requires much more record keeping - such as tracking what percentage of time the vehicle was used for these purposes throughout the year, the actual amount and cost of the gas used, vehicle maintenance, licensing, etc. That is likely not worth the effort. Think of this as akin to the standard versus actual income tax deduction on the tax form - you can track all the details yourself or just use the IRS' best guess.)

What Documentation Is Needed?

To deduct mileage, you need to maintain appropriate documentation. According to the IRS, this means:

  • identification of the vehicle used
  • documentation of vehicle ownership
  • log of miles driven, destination, and purpose of trips
  • receipts for any parking fees or tolls paid 
Additionally, to claim this deduction, you have to itemize all your deductions on your taxes - you cannot claim the standard deduction and get this deduction too. (If you have a mortgage, odds are, you are itemizing your deductions anyway.)

Is It Worth It?

The deduction amounts seem rather small and the documentation requirements sound like a pain in the ass. Is it actually worth it to claim this deduction?

The answer, of course, depends on how much you drive and how much you mind keeping records. I will however, tell you that the ubiquity of smart phones has made record keeping as painless as possible. I never leave home without my phone and, as the saying goes, there's an app for that! I use the Mile Bug app.

Mile Bug lets you define start and destination points for your trip, beginning and ending odometer readings from your car, and the reason for your trip. If you want, you can turn on GPS tracking and it will track the miles you drive via GPS. At the end of the year, you can email yourself or your tax preparer a report of all your trips. Here is a sample of my report for this year so far:

click to upsize

I typically end up with about $150 to $200 each year in mileage deductions, which translates to a $40 to $55 tax saving each year (at the 27% tax rate). You might as well take advantage of every deduction you can and don't leave money on the table!


Post a Comment