EasyMileLog

EasyMileLog | Track your work related miles efficiently and headache free!
January 18, 2011

Tax Deduction FAQs

Our goal with the EasyMile Log was to try to make your taxes easier so you can focus on your business. Invariably, though, tax questions do come up. So we have tried to answer many of the questions Small Business owners have about “What is tax deductible”. Some of these questions have nothing to do with the EasyMile Log, but we wanted to help as much as possible. Of course, please contact your personal CPA or tax professional as your specific situation may vary…

Mileage

What is deductible?

Basically, all the miles you drive which have a business purpose are deductible, with the exception of driving to and from your office. If your office is in your home, than all the miles driven outside of your home (for business) are deductible.

What is the standard mileage rate?

  • Currently 55.5 cents per mile for business miles driven
  • 23.5 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations

What if I don’t have an outside office, of what if I don’t go to the office everyday?

If your office is in your house, then all business outside of it is a business expense. Same answer if you don’t go to the office. The IRS has two main concerns – 1. Was it driving for legitimate business purposes 2.Your normal commute to your office is not deductible. The IRS is the ultimate single-minded accountant – do you have your documentation?

Do I have to keep all my receipts? For gas, repairs, oil changes, etc?

If you use the standard mileage rate (above), you do NOT have to keep your receipts. If you want to use your ACTUAL costs, including depreciating your vehicle, then you DO have keep the receipts. In either case, though, you will need to be able to track how much you used your vehicle for work/personal.

If I have advertising on my car, doesn’t that make it 100% deductible?

The cost of the advertising is – but not the cost of the car! So whatever it cost to do the paint job is definitely deductible, but the IRS does not agree that driving to the grocery store is deductible since you have an ad on the side of your car. So you still need to be able to document how many miles you drove which were work related vs. how many miles were for personal use.

What if my car is specific for my business? Like a truck for my landscape business?

If the vehicle can be driven for non-business purposes easily, than the IRS will assume that you did. So a pick-up used for business could be argued by the IRS to have been used by you for personal travel as well. It is now up to you to prove otherwise. As an example, the IRS has claimed that tow-trucks could be used for personal travel (imagine taking a date out in a tow truck). You need to have your documentation to prove that the vehicle was used for business purposes only, or they could disallow the deduction.

If I don’t have my documentation, what will it cost me?

It depends on your deduction claim. If you are audited by the IRS (and over 1 million audits happen each year), here is a simple example:

  • You drove 10,000 miles for work, using the standard deduction
  • This would reduce your income by approximately $5,000
  • In the 25% tax bracket, this saves you $1,250 in taxes

If you did not have the documentation, the IRS could force you to repay this amount, plus interest and possibly penalties.

Travel Expenses (not related to your vehicle)
What is deductible?

Again, any travel that is for a legitimate business purpose is deductible. So if you have to travel out of town for business, for training, for a seminar – all the expenses of that trip are deductible. This would include your airfare, meals and reasonable business expenses. The IRS will look to make sure the deduction is not “lavish”, though that term is not defined.

If I travel with a significant other, is that deductible?

Your Travel is deductible, but their travel is not. The shared hotel room is a deduction for you since you would have had a room anyway.

Do I have to keep receipts?

Yes. For meals, receipts can be used, or a daily per diem of $46 per day can be used (without receipts). This limit may be higher depending on the city of travel – check IRS publication 1542 for a specific city.

If I do business on a vacation, is the trip deductible?

The business portion of the trip is deductible, while the vacation is not. For example, if you go to Florida and spend 3 days on the beach and 2 days working (and the work had to be done in Florida, such as meeting clients), then the travel would be deductible, 2 days of hotels and meals would be deductible, but the 3 days on the beach would not.

If I don’t have my documentation, what will it cost me?

See the answer above, as the IRS can disallow any deduction for which you do not have the documentation.

Meals and Entertainment Expenses what is deductible?

In order to deduct Entertainment, the main purpose of the event needs to be to conduct business, business has to be actually conducted, and you had to have more than a general expectation of making money from it. The IRS will look to make sure the deduction is not “lavish”, though that term is not defined.

What is not deductible?

Any expense that does not have a legitimate business purpose is not deductible. Also, expenses related to any Club or Membership are not deductible. So no Yacht club dues or Golf Club Fees are deductible. Also, expenses related to bringing a significant other are not deductible.

Are gifts deductible?

Yes, but are limited to $25 per gift, even if you have a receipt.

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