Mileage As a Deduction (Guest Blogger: Arlene Perry )

Hello to all my entrepreneurs who are happily making that time-consuming commitment to creating a business for themselves and a legacy for their loved ones.

You’re busy running around, from client to client or location or location while running up all those miles on your vehicle. Well I have some good news for you. Those miles can be tax deductible. And in turn, will help decrease your taxable income. Because who in their right mind wouldn’t want to have less income to report to our best friend, Uncle Sam?

Business owners, including the self-employed, are allowed to deduct the mileage used for business. To do so, they have to use either the current IRS rate of 54 cents per mile or the business portion of their actual auto expenses. Expenses like gas, car payments and insurance. Whatever method they decide to use, they must have good, accurate, written records maintained and produced if ever the IRS should audit them.

The IRS does consider mileage deduction an easy target for auditing because there are strict restrictions on the type of mileage that qualifies as a deduction.

Individuals may also deduct their mileage if they are an employee who uses his or her car for business. Keep in mind though that the mileage Can’t Include Commuting To And From Work And Can’t Be Reimbursed By Your Employer. Here’s what Mileage can be deducted:

 Travel between 2 different work locations
 Travel to temporary work location (less than 1 year) from your home
 Travel for business related work errands, (ex. Banking, Purchasing Supplies, Setting up work events)
 Travel for clients’ meetings, both self-employed and employees
 Travel for business meetings or clients’ entertainment
 Travel to airports if related to clients

*****SELF-EMPLOYED PERSONS WILL CLAIM THEIR MILEAGE AS AN EXPENSE ON SCHEDULE C RATHER THAN ITEMIZING ON SCHEDULE A LIKE EMPLOYEES WILL DO****

In addition to the above rules, there are a few other things that can be beneficial to the tax payer. Here they are:

 People who are unemployed and traveling looking for work may deduct mileage to find a new job in their current occupation. BUT NOT traveling seeking employment in a new industry. They can deduct expenses paid traveling by public transportation.

 Those working full-time 39 weeks in the last 12-month period and have relocated at least 50 miles for work are entitled to claim a smaller deduction of 23 cents a mile

 For those working from home, usually the self-employed, there is no commuting mileage. So you claim all mileage traveling to business locations such as a second office or the clients’ locations.

As stated earlier in this post, it’s vital for individuals to keep accurate records when deciding to claim mileage. Audits by the IRS are unpredictable and have absolutely nothing to do with tax preparers.

Taxpayers are responsible for the upkeep of their own records. Which is why I also highly recommend they meet with a Bookkeeping or Accounting professional at least once a year. Twice for optimum benefits.

Additionally, I suggest investing in a travel log that can be obtained from any stationary store. And if individuals are technologically savvy, there are plenty of Apps available like QuickBooks Self-Employed. These will allow them to keep the records needed for the IRS if need be . They will need to show the number of miles for each trip, the date and time for each trip, the location they went to and the purpose of the trip which would include a client’s name if appropriate.

Mileage is a deduction/expense the tax payer is entitled to, but many bypass it because of the work involved. I say take every deduction you can and put in the effort because it can be worth it.

FOR ADDITIONAL INFORMATION ON THIS SUBJECT, REVIEW IRS PUBLICATION 463 at https://www.irs.gov/pub/irs-pdf/p463.pdf

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Arlene Perry, Bookkeeper, MBA
Arlene@ArlenesUnlimitedServices.Com

Arlene Perry, MBA is the owner of Arlene’s Unlimited Services; a full service tax preparation, bookkeeping and payroll business. Having had the business since 1998,  she serves the Manhattan and Bronx areas of New York City.

Within this time, Ms. Perry has worked with a variety of small businesses in different industries. They include security and retail as well as the bookkeeping of non-profit organizations.

Arlene graduated with a Bachelor’s degree in Accounting and a Masters degree in Business from Monroe College in New Rochelle, New York.

Prior to returning to college, Ms. Perry worked for the City of New York as a Police Officer. While serving, she prepared the tax returns for many of her co-workers and kept the financial records of a non-profit youth group that she was a part of.

Presently, Ms. Perry is working for a great non-profit organization focusing on keeping our youth out of the prison system. She’s also creating a side Baking Business. She’s a proud member of Real Sisters Rising, M & M Projects and Administrator of a Bookkeepers and Food Groups on FaceBook.

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Married? File Taxes Jointly

Taxes_DueDuring a recent tax filing season, a new tax client of mine openly cried at my desk because of her newly discovered $8,800 tax bill to the IRS and $2,200 tax bill to New York State. All primarily because she filed her taxes “married filing separately” instead of “married filing jointly” with her husband.

Married Filing Separately

Federal and state governments want legally married couples to file their taxes together and to encourage them governments don’t allow certain credits, deductions and exemptions for couples who file “separately.” It also puts couples who file “separately” in a higher tax bracket then those who file “jointly.”

Taxes for 1099 Independent Contract Work

My client also got the new tax bills because she worked as a 1099 independent contractor during the year outside of her normal 9-5 and did not pay taxes on that income throughout the year. $18,000 worth of self employment income.

W4 Exemptions/Allowances

To cap off her problems and to make matters worse, her job in the social services field did not take out enough in taxes every paycheck to meet her tax obligations for the year. Had she simply put zero or one on line 5 of her W-4 form, her employer would have taken out more each paycheck to meet her tax obligation.

Tax Solutions

To make my client’s life better going forward, I gave her a number of recommendations. First, I talked with her about the differences between filing separately and filing jointly. She’s going to try to work with her husband on that. Next, I gave her the necessary paperwork she’ll need to pay her estimated taxes for her self-employment.

Then, I told her to talk with her employer about changing her exemptions/allowances so she can make them as low as possible. That way more taxes are taken out of her paycheck then needed. Finally, I gave her the websites for the IRS and New York State to work out a payment plan for her outstanding debt. With all of this hopefully we’ll have a much better tax prep experience next year.

 

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