How Does IRS View the Mileage to and from Work?

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The IRS considers the first trip out of your house to the office and the last trip from your office to your home as commuting.

Commuting is not an allowed deduction, and therefore you cannot claim mileage deductions on commuting.

The IRS sees where you live as a personal choice, and thus if you live far from your place of work, the expense you incur will be on you.

Making business calls, replying to emails or having business conferences on your way to work will NOT convert a commute into a business mile.

Pro Tip:

You can get around this IRS rule by creating a home office and converting it into your principal place of work.

For your home office to be recognised by the IRS as your primary work location, you will have to prove that you earn the more significant percentage of your income from there or that most of your administrative work is done from there.

The evidence you provide will allow you to log business mileage from your home office to your place of work, and this is an allowable deduction.

How to Get Mileage Deductions on Taxes in 2018

If you choose to use the Standard Mileage Rate method of deduction, you will use the following rates for deduction:

  • Business mileage at 54.5 cents per mile
  • Medical miles at 18 cents per mile
  • Charity miles at 14 cents per mile

Example:

James is a salesman for a pharmaceutical company. In the year 2018, he drove a total of 18,000 miles to meet clients and 4,000 miles from his home to the office and back.

During the year, he incurred a total of $650 for parking and $700 for tolls.

During the year, he visited the hospital three times and covered a total of 200 miles and at the end of the year, the company he drove 100 miles for a charity ball that was organised by the Help the Children Fund.

Calculate his total mileage deduction for the year.

ParticularsAmount ($)
Business drives x 54.5 cents (SMR Rate) i.e.
18,000 miles x 54.5 cents = $9810
9810
Parking costs650
Toll expenses700
Miles driven for medical purposes x18cents i.e.
200 miles x 18 cents = $36
36
Miles driven on behalf of charity organizations x 14 i.e.
100 miles x14 cents = $14
14
Total Deductible Mileage11,210

Note1: Toll and parking expenses are NOT allowed if you have already claimed depreciation on the vehicle.

Note2: You will note that the 4,000 miles driven from home to office and back are NOT included here because they are regarded as commute by the IRS.

The only way to convert the miles into allowable deductions is for James to convert his home into an office from where he will need to do most of his administrative work.

deductible transportation expenses
Source: www.nerdwallet.com

What Is Mileage Reimbursement?

Don’t confuse mileage reimbursement with mileage deduction.

Mileage reimbursement occurs when you are reimbursed by the employer or client for the miles driven for business purposes.

Most employers reimburse mileage as a way of attracting and retaining top talent.

Mileage deduction is the amount of money you claim against your tax when filing returns.

What Is the Advantage of Standard Mileage Rate over Actual Expense?

The Standard Mileage Rate requires few records because you are only required to keep the records of miles driven for business purposes.

Contrastingly, the Actual Expenses method requires that you record ALL the expenses incurred for running a car.

You will also be expected to keep the receipts showing that you paid for the said expenses.

As the best practice, if you opt to go with the Actual Expenses method, you need to keep a very detailed account of your daily car expenses.

After you file the returns, be on the lookout for the costs that were disallowed by the IRS to avoid doing unnecessary work during the next round of filing the returns.

Limitations of Using Standard Mileage Rate

The Standard Mileage Rate is limiting in nature. There are some situations where you cannot use the method to deduct your mileage in which case you are stuck with the complicated Actual Expenses method.

Within the first year of using the car for business purposes, you must start using the Standard Mileage Rate.

The IRS stops you from using the method in subsequent years if you didn’t choose the method in the first year.

If you opt for this method, you can never factor in the operational costs in mileage deductions even if the costs give you a higher deduction compared to the standard mileage rate.

The IRS argues that it has already factored in all these costs when coming up with the rate.

What Are the Limits to Claiming Mileage Deductions?

There is no limit into the number of miles that you can claim as long as you have sufficient evidence that they happened.

However, the IRS will pay particular interest to your claims if:

  • Your mileage claims over the years are inconsistent – If in the year 2017 you claimed 50,000 miles and in 2018 you claim 15,000 miles, the IRS will require some sufficient explanation for the drastic fall.
  • Your mileage claims are a round number – The chances that you will have driven 10,000 miles flat are rare. The figure will be more like 10,111.65 if you are logging your mileage with a mileage app.
  • Your total mileage for the year equals the total mileage claimed – It is virtually impossible to have driven throughout the year for business purposes only. If your total mileage is 10,111.65 miles, some 422.74 miles would be for personal reasons. Don’t raise the red flags and make IRS pay unnecessary attention to your claims.

There are varying ways to avoid paying high taxes. If you run a business that involves a lot of driving, you are advised to use the mileage deduction on your taxes to increase your net profit.

Use smart technology such as GOFAR to track and log your mileage.

The technology will help you find your engine’s sweet spot and then train you to drive more fuel efficiently.

Other areas where GOFAR can also help you include:

  • Fault finding and alerting you when it finds one
  • Translating the technical car malfunction jargon into plain English
  • Connecting you with the best part suppliers and mechanics in your area (only in Australia so far)

Ready to track and log your mileage the easy way? Go ahead.

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