If you use your own vehicle for business purposes, you may be able to deduct a percentage of your driving-related expenses from your taxable income. To do so, you'll need to keep an accurate record of your business-related driving and activities.

Qualifying mileage deductions
The IRS has specific rules in place as to what types of business driving are eligible for a mileage deduction. Your daily commute from your home to your permanent work location does not qualify for a business mileage deduction. On the other hand, if you need to travel to a second company location that is not your primary office, you may be able to deduct your mileage costs.

You can also take a mileage deduction for travel to and from business conferences, off-site meetings, and business-related events, including lunches or dinners with current or prospective customers. You can also deduct your mileage if you travel to visit customers or use your vehicle to run business-related errands, such as obtaining supplies or getting documents notarized.

Keeping a mileage log
The IRS tends to be strict in its documentation requirements for business mileage deductions. For this reason, you'll need to keep a thorough, accurate mileage log each year you attempt to claim a deduction.

Your mileage log must include the starting mileage on your vehicle's odometer at the beginning of the year and its ending mileage at the conclusion of the year. Each time you use your vehicle for business purposes, you must record the following information:

  • The date of your trip
  • Your starting point
  • Your destination
  • The purpose of your trip
  • Your vehicle's starting mileage
  • Your vehicle's ending mileage
  • Tolls or other trip-related costs

You can keep a mileage log in a notebook and update it by hand, or use a spreadsheet to continuously track your mileage. You can also use a mileage-tracking app. The key is to update your records regularly to ensure that they're precise. Additionally, the IRS requires you to keep your mileage log for three years from the date on which you file the income tax return containing your deduction.

Calculating your deductions
You have two options for claiming your business mileage deduction: You can use the standard mileage rate as determined by the IRS, or you can deduct your actual expenses.

If you use the standard mileage rate, you take a preset deduction for every mile you drive for business purposes. The IRS establishes a standard mileage rate each year. For 2015, the rate is 57.5 cents per mile. If you drive 2,000 miles for business purposes in 2015, using the standard mileage rate, you'd claim $1,150 as a deduction on your taxable income.

When you use the standard mileage rate, you cannot deduct any other vehicle operating expenses, including repairs, maintenance, and registration fees. All of these items, including depreciation on your vehicle, are factored into the IRS's standard mileage rate.

To deduct your actual expenses, you'll need to keep a thorough record of all vehicle-related costs, including standard maintenance and repairs. From there, you'll need to determine what percentage of your total mileage qualifies as eligible business mileage and then deduct that percentage on your taxes. If your vehicle-related expenses equal $4,000 in 2015 and 50% of your total mileage qualifies as business mileage, you can deduct $2,000 from your taxable income.

The $15,978 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. In fact, one MarketWatch reporter argues that if more Americans knew about this, the government would have to shell out an extra $10 billion annually. For example: one easy, 17-minute trick could pay you as much as $15,978 more... each year! Once you learn how to take advantage of all these loopholes, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how you can take advantage of these strategies.

This article is part of The Motley Fool's Knowledge Center, which was created based on the collected wisdom of a fantastic community of investors based in the Foolsaurus. Pop on over there to learn more about our Wiki and how you can be involved in helping the world invest, better! If you see any issues with this page, please email us at knowledgecenter@fool.com. Thanks -- and Fool on!


Compare Brokers