With today’s recession economy and the tax situation uncertain in the future, many people are looking for as many tax deductible business expenses as possible. One of the biggest deductions, at least for small and home-based business owners, is going to be the mileage deduction. But there is something you have to know before you take this deduction. For the mileage deduction IRS rules for recordkeeping and documentation are hugely important.
You can, of course, look up the mileage deduction IRS rules on the internet. However, to make things easier, if you are looking to take that mileage deduction in the coming year here is a guideline for what you need to document. For at least 90 consecutive days, every time you get into your vehicle and drive somewhere, you will need to record the following:
- business for which the miles were driven (if you have multiple businesses)
- primary purpose of the trip
- beginning odometer reading
- ending odometer reading
- business miles driven
- personal miles driven
You will want to record 90 days of mileage that reflect your typical driving habits because this is what the IRS will use to determine what percentage of your driving is primarily for business or personal use for that year. In 2008, for each business mile you drive you can deduct 50.5 cents. Now here are some really cool footnotes about the mileage deduction IRS rules.
1. According to IRS Section 274(d), you don’t have to be totally precise about the primary purpose of the trip. If you’re destination is “Rudy’s Restaurant” and you are there to meet a potential client, you can just enter “business presentation” for your primary purpose. Now documentation for your mileage deduction isn’t so complicated.
2. Mileage deduction IRS rules are not picky about you doing some errands and shopping as long as the primary purpose of the trip is business. For instance, suppose Rudy’s Restaurant is in the same strip mall as a grocery store. There is nothing to stop you from doing some quick grocery shopping after your business presentation at Rudy’s. Do not record your shopping activities in your mileage log.
3. You can also deduct some personal miles as long as they are for charity, going to or from medical appointments, or moving to a new job location at least 50 miles away. The rates vary for. For 2008 you can deduct 19 cents per mile for medical or moving purposes and 14 cents per mile for charitable purposes. You see? Even the IRS will give you some slack when it comes to your mileage deduction.
Mileage deduction IRS rules are not difficult to follow. You just have to be consistent for 90 days to make sure you are covered in case you ever get audited. According to home-business tax advisor Ronald Mueller, chances are that if you keep great documentation the IRS will not hassle you if you get pulled for a random audit. IRS auditors are looking for people who are trying to avoid paying extra taxes, not people who make use of legal tax deductible business expenses and keep meticulous records. Just throw a notepad in your vehicle, be a perfectionist for 90 days, and you’ll have your mileage deduction all worked out for the year!
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