Don't Mess With Taxes

If you're self-employed, use your car for work, and have taken your last business trip of 2024, go out to your vehicle and take a photo of the odometer. It could help when you file your tax return next year. (Photo by Fortune Vieyra on Unsplash)

I grocery shop every Tuesday. That meant today’s weekly trip was to my local H-E-B was on the last day of 2024.

It was the last time I’ll get in the car this year. So when I pulled into my garage after stocking up on necessities (milk, bread, produce) and other items (potato chips and ice cream, that I contend, but economists and dieticians would dispute, are vital to my existence), I checked my car’s odometer.

The trip to the grocery store definitely wasn’t work related, but I also use my aging Chevy for business trips, too. So, to keep the Internal Revenue Service happy when I file, I report my how many miles each year I used the car for business travel, non-business excursions, and the total tallied over the last 12 months.

My Chevy's 45,297 total miles odometer reading this Dec. 31 morning.

Tracking your tax-deductible travel: If you also make vehicular trips in connection with your business, note the mileage on the auto you use today.

Or tomorrow when you first get in the vehicle.

Or both days, if you’re even more record-keeping obsessive-compulsive than I am.

In addition to jotting down today’s final miles total in my business ledger, before I got out of the car I also used my phone’s camera to snap a photo. (See, record OCD.)

That way I have a time- and date-stamped record that is also saved to the cloud (whatever that is 😉), as well as downloaded on my own computer and dropped into my tax filing folder.

No requirement, but a good idea: While there's no IRS rule that you record in some manner your odometer's annual reading, most tax professionals I know say it’s a good idea. Again, these folks are sticklers for thorough, accurate records, many even more so than Uncle Sam’s employees.

If the auto was used only for work-related trips, the difference between this and last year's mileage photos gives you the one-year total deductible business miles.

Where you use your vehicle for business and personal trips (like I do), the total annual miles driven record is good to have. More on why in a minute.

IRS driving questions: If you're a sole proprietor (again, like me), your auto's annual mile count is useful when you fill out your Form 1040 Schedule C next filing season. As the image below shows, that schedule's Part IV wants some Information on Your Vehicle.

See more tax forms and more about them at Tax Forms 2024.

That info includes, among other things, the amount of various driving you did (noted by the red star I, not the IRS, added) during the tax year.

Along with your other record of all your business driving that you kept as you made the work-related trips, you'll be able to easily fill out line 44a, b, and c, as well as 47a and b.

Allowable deductible miles: Let's get one thing clear right off the top. You cannot make a tax claim for miles you commute to a job where you are an employee.

However, you can and should deduct miles you drive that are related to a business you own. The miles count if you or your company own the vehicle.

If you use your personal car, the allowable mileage must be for business-specific use in order to claim it as a deduction.

Mileage that can be deducted for business purposes includes travel to clients' or customers' locations, going to an off-site business meeting, a road trip to a business conference, and even driving to purchase business supplies or make company bank deposits.

You also get to count tolls and parking fees incurred on business trips.

Record keeping requirements: Remember lines 47a and b of Schedule C just discussed a few paragraphs earlier? The IRS says you should keep adequate records of all your business expenses.

"You should keep the proof you need in an account book, diary, log, statement of expense, trip sheets, or similar record. You should also keep documentary evidence that, together with your record, will support each element of an expense," according to IRS Publication 463, Travel, Gift, and Car Expenses.

In addition to the correct mileage, the IRS requires you be able to show some other details on the work-related drive. This includes —

• Date of your business trip,
• Your starting point,
• Your destination,
• Purpose of your trip,
• Vehicle's starting mileage,
• Vehicle's ending mileage, and
• Tolls and other trip-related costs.

You also can account for several uses of your car that can be considered part of a single use, such as a round trip or uninterrupted business use, with a single record. The IRS says minimal personal use, such as a stop for lunch on the way between two business stops, isn't an interruption of business use.

In the olden tax days, the record keeping standard was a small notebook where you jotted down your business driving details. Nowadays, a variety of smartphone apps will keep track of your travel. The IRS doesn't care what you use, as long as you pick a way use it regularly.

You don't have to submit the records when you file your return. But if an IRS examiner has questions, you'll definitely want the documentation to prove that your business driving claims are accurate.

Mileage deduction options: When it's time to claim your business miles at tax-filing time, you have a choice.

You can use the standard mileage rate method. This is per-mile amount, adjusted annually for inflation, that you multiply by the number of miles you use your car for work. The rate you’ll use for the 2024 tax year when you file next year is 67 cents per mile. For business travel beginning Jan. 1, 2025, the rate goes up to 70 cents per mile.

A lot of business drivers use the optional standard rate because it’s easy. But if you prefer, you can track and report on your return the actual auto expenses you incurred while using the vehicle for business. This includes such things as your fuel costs, vehicle repairs, and tires.

The actual expenses method also lets you deduct an amount for your vehicle's depreciation each year. This gives you much larger deductions in the first few years after the purchase of a car for business than you would get by using standard mileage rate.

The depreciation factor also is why you see so many expensive business vehicles.

First method choice is critical: Again, the standard optional rate obviously is easier, but you could be losing some tax benefit. So run the numbers both ways and choose carefully. It could make a significant tax difference.

And don’t just decide based on the numbers. Your choice also could, in some cases, lock you into an auto deduction method you might not want years down the tax road.

Tax law says that if you own your car and want to use the standard mileage rate, you must choose that method in the first year you use the vehicle for your business. In later years, you can then move between either the standard mileage rate or the actual expenses.

However, if you choose to claim the actual expenses when you first start deducting your car's business miles, you could find yourself forced to use that method for as long as you drive that vehicle for business. It depends the depreciation method, if any, you used in an earlier year.

In most cases, however, business drivers who start with the actual vehicle expenses method find themselves stuck using that system for the duration that they drive that car.

The lifetime use of the car consideration is why many drivers decide to go with the standard rate, even if the actual expenses method would be a bit more tax beneficial. That and the easier record keeping of simply tracking your miles instead of every auto-related expense.

More auto expenses info: You can find more on the actual vs. standard auto deduction methods in my post Actual auto expenses or standard mileage rate? Which business deduction method will cut your taxes more? Just ignore that goofy (and dated) autonomous vehicle picture.

Also check out what the IRS has to say about deducting driving miles and other vehicle expenses in the aforementioned IRS Publication 463. That publication has a special section on car, truck, or van depreciation limits. Note that the depreciation link right now goes to the 2023 instructions, but should update when the IRS posts the 2024 version.

The IRS also discusses auto expenses in its Tax Topic No. 510, Business Use of Car.

And, of course, always check with your tax and financial advisers.

You also might find these items of interest:

• Being the boss tax basics
• How ordinary & necessary expenses become tax deductions
• Business mileage tax deduction rate goes up in 2025, other three are unchanged

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