Whether you’re self-employed or an employee, if you use a car for business, you get the benefit of tax deductions.
There are two choices for claiming deductions:
- Deduct the actual business-related costs of gas, oil, lubrication, repairs, tires, supplies, parking, tolls, drivers’ salaries, and depreciation.
- Use the standard mileage deduction in 2017 and simply multiply 53.5 cents by the number of business miles traveled during the year. Your actual parking fees and tolls are deducted separately under this method.
Which Method Is Better?
For some taxpayers, using the standard mileage rate produces a larger deduction. Others fare better tax-wise by deducting actual expenses.
Tip: The actual cost method allows you to claim accelerated depreciation on your car, subject to limits and restrictions not discussed here.
The standard mileage amount includes an allowance for depreciation. Opting for the standard mileage method allows you to bypass certain limits and restrictions and is simpler– but it’s often less advantageous in dollar terms.
Caution: The standard rate may understate your costs, especially if you use the car 100 percent for business, or close to that percentage.
Generally, the standard mileage method benefits taxpayers who have less expensive cars or who travel a large number of business miles.
Keep careful records of your travel expenses and record your mileage. you can use a log book or if you’re tech savvy, an app on your phone or tablet. Keeping track of the number of miles driven and the total amount you spent on the car is essential because if you don’t, your tax advisor won’t be able to determine which of the two options is more advantageous for you at tax time.
Furthermore, the tax law requires that you keep travel expense records and that you show business versus personal use on your tax return. If you use the actual cost method for your auto deductions, you must keep receipts.
Tip: Consider using a separate credit card for business, to simplify your recordkeeping.
Tip: You can also deduct the interest you pay to finance a business-use car if you’re self-employed.
Note: Self-employed individuals and employees who use their cars for business can deduct auto expenses if they either (1) don’t get reimbursed, or (2) are reimbursed under an employer’s “non-accountable” reimbursement plan. In the case of employees, expenses are deductible to the extent that auto expenses (together with other “miscellaneous itemized deductions”) exceed two percent of adjusted gross income.
Apps for Tracking Business Mileage
There are a number of phone applications (apps) that could help you track those pesky business miles. Most of these apps are useful for tracking and reporting expenses, mileage and billable time. They use GPS to track mileage, allow you to track receipts, choose the mileage type (Business, Charitable, Medical, Moving, Personal), and produce formatted reports (IRS compliant HTML and CSV tax return reports) that are easy to generate and share with your CPA, EA, or tax advisor.
Here are three popular apps that help you track your business mileage:
1. TripLog – Mileage Log Tracker
Works with: Android and iPhone
What it does: Tracks vehicle mileage and locations using GPS
- Automatic start when plugged into power or connected to a Bluetooth device and driving more than five mph
- Reads your vehicle’s odometer from OBD-II scan tools
- Syncs data between the web service and multiple mobile devices
- Supports commercial trucks including per diem allowance, state-by-state mileage for IFTA fuel tax reports, and DEF fuel purchases and gas mileage
2. Track My Mileage
Works with: Android and iPhone
What it does: Keeps track of mileage for business or personal use
- Provides mileage rates used to calculate the deductible costs of operating your automobile
- Allows you to group your trips by client
- Tracks multiple drivers and vehicles tracking
- Localized and translated into more than 20 languages
Works with: iPhone and iPad
What it does: Tracks mileage, as well as expenses and billable time
- Allows you to choose which way you want to track your mileage
- Remembers Frequent trips
- Creates reports in PDF format or CSV for importing into Excel
- Ability to email your reports and photo receipts