How Much Mileage Can I Deduct This Tax Year?

During tax time, we often get questions from employees and business owners on how much of their auto mileage they can deduct on their tax return. This is one of the biggest questions where a slippery slope can occur without approaching this topic in the right manner. For most people including business owners, their automobile is not used 100% for business purposes. Thus, if you use the car for both business and personal purposes, you can only deduct the mileage related to the business portion of using the car. Here are some guidelines to keep in mind when deducting your mileage on your tax return.

You can generally figure the amount of your deductible car expense by using one of two methods: the standard mileage rate method or the actual expense method. If you qualify to use both methods, you may want to figure your deduction both ways before choosing a method to see which one gives you a larger deduction. Most of you will probably elect to use the standard mileage method this year. For 2015, the rate was 57.5 cents on the mile, decreasing to 54 cents per mile in 2016. Don’t forget that you may also be able to deduct certain mileage for charitable contributions (14 cents) and for medical expenses (23 cents in 2015, 19 cents in 2016).

The major mistake many people make when it comes to mileage is using the ‘guesstimate’ method which just won’t fly if you get audited by the IRS. This is the situation where an owner or a salesperson drives 15,000 miles per year and guesses that they use the car about 50% of the time for business purposes. Thus, they say that they drove 7,500 miles during the year for their business and will get a tax deduction of (7,500*.56) on their tax return. The problem is without proper documentation and logging of the specifics around these miles, you simply won’t pass the smell test should you be audited.

The best way to log these miles is to keep some type of daily record within your calendar, an excel spreadsheet, or even a notebook. Record your mileage, the dates of your business trips, the places you drove for your business trips, the purpose of your business trips, and the people who came with you.

Do you notice a recurring them here in my suggestions? The key is documentation. The more detailed your records and notes, the better chance your mileage records have for holding water. Remember, the commute to and from your home to work NEVER count in the mileage deduction process.

People will often ask what percentage of business miles vs. personal miles will trigger an audit. A CPA may be able to answer this question although I have never found a particularly good guideline. At the end of the day, you should deduct as much of your mileage as you can prove was tied to business activities. Keep good documentation and consider using an app like the GoSmallBiz.com Transaction Tracker, MileIQ, Mileage Log+, Tax Mileage, or Trip Log. When it comes to tax savings, this could be the easiest way to get from point A and point B- but you have to keep those records in order!

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