by Alex Franch, Enrolled Agent
Most business travel of involves the use a car, van, pickup or panel truck. While the costs are significant, tax deductions are available.
- Travel from one work location to another
- Visiting customers
- Attending a business meeting away from the regular work place
- Travel from home to a temporary workplace if you have one or more regular places of work.
- It is important to note that travel between a taxpayer’s home and regular place of work is commuting expense and considered personal (i.e., not deductible).
There are two methods to calculate cost that may be used for business travel: a standard mileage rate (56 cents in 2014) or actual expenses. In addition, both of these methods require calculating the business portion of the expenses that may be deducted. Both methods require adequate recordkeeping.
The calculation for the deductible portion of expenses allowed for tax purposes is based on a ratio of business use. For example, if you drive a car a total of 10,000 miles for the year, of which 7,500 miles are for business purposes, the business use percentage is 75%. Therefore, 75% will be applied against total expenses of operating the car.
Keeping a mileage log is the recordkeeping required to validate business use. The daily log should show miles traveled, destination and business purpose. To simplify, note the odometer reading at the beginning and end of the year to calculate total miles driven. Sum up the business miles from the daily log to determine a total for the year. Divide the Business Miles by Total Miles = % of Business Use. This is to be applied against costs.
There are smartphone apps with GPS capability. TaxPocket, is one app that helps to maintain a mileage log.
What Additional Records Must be Maintained?
- Date the vehicle was placed into use for business travel
- Adjusted cost basis of vehicle (keep bills of sale and records of trade-in/disposal or lease contracts)
- Receipts to prove operating expenses (if using the actual cost method)
In conclusion, using a vehicle for business travel purposes is commonplace. As with all tax deductions, recordkeeping is required to prove the deduction. Using the standard mileage rate simplifies recordkeeping. Remember, a mileage log is mandatory.