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Small Business Owners: Why it is Essential to Track Your Miles

If you are a small business owner, then it is important to have a system in place to keep track of your write-offs and other expenses that can be used as tax deductions. Most people are pretty good at keeping track of inventory costs, employee payroll, and office supplies. But, do you track your miles? If you aren’t doing it already, then right now is the perfect time to get started with mileage tracking so you can maximize your tax deductions for the year.

Focusing on Revenue vs. Take Home Pay

One of the reasons why deductions like mileage fall through the cracks is because your focus is turned to the activities that are bringing in revenue. While it is important to be proactive about increasing your receivables, you are making a big mistake if you aren’t also thinking about your costs as well. The amount of money you spend on business line items will cut into your profitability and reduce your take-home pay.

One of the best ways to manage your profitability is to design a system so that you are maximizing your deductions. This process helps you see the money that is moving in and out of your account. You can evaluate each of the transactions to determine if it is essential for business activities and growth. Then, these transactions can be recorded to be used as deductions when it’s time to do your taxes for the year.

Personal Vehicle Deduction

Most likely, you are using a personal vehicle to get around town for business purposes. In this case, you can’t write off every penny spent on buying the vehicle, the monthly loan payments, maintenance services, or gas. But these costs add up, especially when you are driving for your business. The most effective solution is to track your mileage. Then your accountant will use this information to calculate the deduction for motor vehicle expenses.

The IRS allows you to deduct a portion of the costs of using your personal vehicle. Even though the car is used for personal activities, such as driving the kids to school or picking up groceries, some of the miles used are necessary to keep your business running. For example, if you are driving to meet a client or you need to go to the bank, then you should track your miles to use as a deduction.

It is important to note that you can’t deduct your commute between home and work. But you can deduct the miles for every trip related to your small business. Every time you get in the car, evaluate whether the trip is for business reasons. Examples might include:

  • Picking up office supplies
  • Meeting with a vendor
  • An appointment at a client’s office
  • A trip to the bank
  • Driving to a conference or expo
  • Moving between offices
  • Driving to the airport for a work trip

Even if you don’t feel like the miles are significant, you might be surprised to see how much they add up when you are keeping track. For example, if you drive an average of 10 miles per day throughout the year for your business, then it is over $2,000 in potential deductions.

How Much is Your Mileage Worth?

Is it worth the time and effort to track your miles? Some business owners don’t worry about this write-off because they feel it is too time-intensive. The truth is that the miles add up over the course of a year, and could be worth a lot in terms of deductions that are available for your tax calculations.

The IRS has a standard mileage rate deduction that changes each calendar year. The mileage rate in 2019 is $0.58 per mile, which is higher than the $0.545 in 2018. So, if you drive 10,000 business miles in 2019, then it means that it could be worth a $5,800 deduction if you track your miles. This deduction can be an effective solution if you are looking for solutions to reduce your overall taxable income.

IRS Rules for Tracking Your Miles

If you are planning to write off a portion of your personal vehicle, then you need to be sure you have documentation to back up the write-offs on your taxes. This information will be essential if you are ever audited in the future. The IRS isn’t going to take your word for the write-offs and they don’t like to calculate deductions based on ballpark figures. You need to keep a detailed record of your mileage so you can claim the mileage deduction.

This mileage log doesn’t need to be filed with your taxes. But you should hold onto the information and keep diligent records in case there are questions in the future.

Creating a Log to Track Your Miles

Once you have a good system in place, it can be easy to keep track of the miles that are driven for your business. Your mileage log should include:

  • # of miles driven on each drive
  • Date of the trip
  • Destination
  • Purpose

The simplest and cheapest option is to have a manual mileage log that is kept in your car. You can have a small notebook and pen where you record the date, mileage, and business purpose. Keep it handy, so you remember to track the information when you are driving for business errands. Then, the miles will need to be tallied and calculated at the end of the year to provide this information to your accountant.

The drawback of this manual system is that you have to remember to write it down each time. It is surprisingly easy to forget to check your odometer, especially when you are in a rush to get to a meeting. Many people forget to log the miles because they are preoccupied with other details of the day.

Mileage Tracking App

The easiest solution is to leverage technology, so you don’t have to get caught in the details of mileage tracking. For example, a mileage tracking app can be installed on your smartphone. There are a variety of app options available in the industry. These apps are designed to provide automated mileage tracking, which means you don’t need to worry about remembering to write down the odometer details each time you get in the car. Using GPS, the app can keep track of the exact mileage driven. Then, the value of the drives can be calculated, providing a report that can be given to the IRS if required in the future.

Do your research to find an app provider that you can trust. For example, some of the free apps make their money by selling your information to third-parties. As such, some business owners prefer to use a paid app to maintain privacy.

Taking Your Mileage Deduction at Tax Time

You are already carrying a load of responsibility as a small business owner, so it is smart to outsource your tax calculations and filings to a trusted accounting team. In this situation, you don’t need to waste your time crunching numbers or trying to figure out how the tax forms should be filled out. Instead, the information and documents can be provided to your tax professional, giving you more time to focus on other responsibilities within your company.

When tax time rolls around, your accountant will mark down your mileage deduction in the “expenses” section of your schedule C tax form. Depending on the situation, you might need to provide the following information:

  • Number of miles tracked during the year
  • Business miles per vehicle (if multiple vehicles were used)
  • Beginning and end odometer readings
  • Parking or toll road expenses incurred while driving

Keep in mind that you have the option to deduct the actual vehicle expenses instead of mileage if you prefer. But this accounting strategy requires more record-keeping, and most business owners find that it isn’t worth the hassle. This system could potentially result in a bigger deduction, though, so it is important to evaluate your options.

Consult with an Accountant

As with any accounting strategy, it is always best to consult with your account. You can read information online about deduction strategies, but nothing beats a conversation with a financial professional who has a clear understanding of your business finances. Most business owners don’t have formal accounting or bookkeeping training, making it invaluable to hire an accounting team for assistance.

A small business accountant is a great investment so that you can maximize more than just your miles. Your accountant will offer recommendations relating to your business spending, payroll processing, and more. Making the transition to outsource these services instead of trying to handle it yourself means you can free up your time to focus on the tasks that will help your business grow.

If you have questions about tracking your miles or you need help with accounting services, then Easier Accounting is here to assist. We invite you to contact our team at your convenience to learn about the accounting and bookkeeping services that are available for your business: (888) 620-0770

Small Business Owners: Manage Your Tax Burden by Leveraging These Deductible Expenses

There are many advantages of self-employment. Not only do you have the flexibility to make your own schedule, but you can also manage your finances in a way that will minimize your tax burden. If you are spending money on anything that is related to your company, then it is important that you are working with your accountant to write off the applicable expenses.

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How do you know which expenses are deductible? Your accountant can provide specific insights to help you include all of the transactions for your business. This professional financial advice will ensure that you are following the IRS rules. Here are some of the main deduction categories that shouldn’t be overlooked:

1. Home Office Space

If you want to deduct a home office, you need to make sure that the space is dedicated to your work activities. The work area needs to be dedicated to your business and nothing else, creating a clear line between business and personal activities.

You don’t necessarily need to use a full room for this deduction. But, if the room is shared with any personal activities, then you will need to calculate the work area compared to the overall space. The best way to figure this calculation is to determine the amount of space used for work, and figure out the percentage compared to the overall square-footage of your home.

Once you have determined this percentage, then you can calculate the portion of your mortgage, rent, utilities, insurance, internet costs, and other household expenses that should be included on your tax claim.

2. Furniture and Equipment

Whether you are buying a new computer or you need a desk to use in your home office, these expenses can be deductions on your taxes. Since the purchase is for business purposes, there is no doubt that they are necessary to keep your company running.

But, like the home office space, there is a fine line to show that the furniture purchase is for business purposes. For example, if you have the family computer in your office and there are kids in the house, then the IRS could potentially ask whether you are using your business computer for other family activities. Instead, it is best to set up the family computer in a different location and use your company computer only for business-related activities. Regardless of IRS tax rules, this is a good idea anyway.

There are two methods that can be used to deduct furniture and office equipment:

  • Take a 100% deduction the year that the purchase is made
  • Depreciate the purchase by deducting a portion of the expense for several years

Your accountant can help you choose the deduction method that will work best for your situation. The simplest solution is to take the full deduction when the purchase is made. But, there are times when it might make sense to use the depreciation method instead.

If you use depreciation for furniture, then the deductions will be split out over a period of seven years. In the case where depreciation is used for electronic equipment, such as computers, scanners, and copiers, then the depreciation is used over a period of five years.

3. Office Supplies

In addition to the big expenses for computer equipment and furniture, there are often other office supplies that are needed for a small business. Whether you are buying stamps to mail out invoices or you need more printer paper, these expenses can be used as deductions.

Any time you purchase office supplies, keep track of the details so that you can ensure that it was a business expense instead of a personal purchase. Hold onto the receipt and make sure that the transaction is recorded in your accounting software.

If you have a receipt that includes both business and personal spending, then you will need to calculate the portion of the cost specifically related to office supplies. The best solution is to have two separate transactions so that you have different receipts for business and personal.

4. Subscriptions and Software

Most businesses utilize some type of software for accounting or other business-related tasks. These software expenses can be deducted from your taxes. These transactions might be in the form of a one-time upfront payment to purchase a software. Or, many software companies are going to subscription-based payment systems that require a monthly or quarterly payment.

What other subscriptions do you have for your business? These subscriptions might include everything from magazines for your clients to read while they are waiting, or a delivery service that provides copy paper and ink on a consistent basis. Anytime you are paying a recurring fee, make sure to track the expense so that you don’t miss out on the tax deduction.

5. Insurance Costs

If you are self-employed, then you are likely paying for your own health insurance, long-term care insurance, and life insurance premiums. These monthly costs are 100% deductible on your taxes.

There are some limitations that your accountant will need to help you avoid though. For example, if you have a small home-based business, your profits will need to exceed the amount that you are writing off for your insurance premiums.

Also, if you were eligible for other health insurance, such as a plan through your spouse’s job, then you aren’t allowed to write off the full amount of independent insurance costs. That being said, if your spouse also worked for your home-based business in addition to their full-time job, then you can deduct the spouse’s premiums that were deducted from their paycheck.

If you choose to deduct the cost of premiums for your spouse’s insurance coverage, then you need to ensure that equal coverage is available for all other employees.

Talk to your accountant about your individual situation to ensure that you are following the guidelines set by the IRS for insurance premium deductions.

6. Travel and Entertainment

There is good news if you are traveling for business because the travel-related expenses can be used as deductions. But, you need to make sure that your trip is business and not personal entertainment. When you are heading somewhere on a business trip, the full expense of your hotel or accommodations is tax-deductible. You can also write off all of the cost of travel, including the plane ticket, rental car, taxi fees, and more.

Other costs of life on the road can also be fully deducted, such as tipping, dry cleaning, or any other costs that might be essential for daily living.

When it comes to meals and entertainment, you can only take a 50% deduction on these expenses. Keep the receipts, and make sure to record down how the meal related to your business efforts.

7. Car Mileage

Make sure that you are tracking your mileage every time you get in the car for business purposes. If you drive for business, then those miles can be written off. The car trips could be for anything related to your company, including a visit with a client, a trip to the bank, or driving to a conference or event.

You need to keep documentation of your mileage. Put a notebook in your car where you record the date, mileage, and the purpose of the trip. At the end of the year, you have two options to write off the mileage on your car:

  • Total the mileage, and your accountant can do the math based on the annual mileage rate. In 2016, the rate was 54 cents per mile. In 2017, the rate is 53.5 cents per mile.
  • Calculate the percentage of time when the vehicle is used for business purposes vs. personal driving. Then, use that percentage to deduct a portion of your payment, repairs, gas, and insurance.

When you have a home-based business, the mileage can start from the moment you pull out of the driveway. If your business is based in an office, your mileage starts when you leave the office to your off-site destination. With an office-based business, you cannot deduct the drive from your home to the office and back.

8. Contributions to a Retirement Account

Certain types of retirement accounts can be tax-deductible, giving you the benefit of shielding some of your income in a given calendar year. Talk to your accountant for suggestions about the type of account that you should be using. Then, set up an account and make contributions to that account throughout the year.

These contributions can be deducted on your personal income tax return if the contributions are made to a qualifying retirement account.

Get Expert Advice from Easier Accounting

Are you interested in learning more about how you can maximize your tax deductions this year? It is important to have an experienced accounting team help you with your tax filing and ongoing bookkeeping systems.

For more information about our first-rate accounting services, talk to our team here at Easier Accounting. We are focused on accounting services for small business owners, giving you the benefit of working with an accounting team that truly cares about you and your company.

For more information about the services that are available, we invite you to contact us right away: (888) 620-0770