Mileage Logs

It is terribly inconvenient to keep track of mileage. However, since a vehicle can be used for personal trips as well as for business purposes, and frequently is, the IRS requires substantiation. The only solution is to keep a mileage log. Fortunately, there are now applications that you can download onto your phone or computer, so get an app. You can also use a MS-Excel spreadsheet.

There are two different ways to compute the cost of business driving, actual cost or cents per mile. Some people mistakenly think that you only have to keep a log if you use the cents per mile method. But even if you use the actual cost method, you still must keep a mileage log so that you have a reasonable method of apportioning between business use and personal use.

Commuting. Everybody has to get to work somehow. Commuting from your home to your job is not deductible for anybody. Count the first trip of the day from your home to your first work location as personal. And count the last trip of the day from the last work location back to your home at the end of the day as personal. All other driving during the day can be counted as either business or personal, depending upon the circumstances.

Records. Your mileage log can be in any format, but at a minimum, it should have the date, the number of miles, and a short description of the business purpose of the trip. Your tax return will have check boxes that ask: (1) do you have records to substantiate your deductible mileage? and (2) are those records written? Of course, you have to tell the truth. Not only can you lose the deduction without adequate records, you can be penalized for trying to take a deduction on an item for which you do not have adequate records.

Income from Personal Use of Company Vehicle. If your Company owns the vehicle (either lease or purchase), instead of you in your own name, your Company must add the value of your personal use to your Form W-2 as additional taxable income. You will need to notify your payroll service early enough in December for them to get that included. The computation is somewhat complex, so if you don’t have a payroll service, get your tax preparer to help. Because of county or local personal property taxes and the increased cost of insurance, it is generally better to own or lease the vehicle in your own personal name, instead of having it titled in the Company name.

Do you have the support you need to manage your small business bookkeeping? Contact us to schedule an appointment to speak with a local small business advisor.