The Business Mileage Rule: A Smart Tax Strategy
Business Mileage – Are you a small business owner always looking for ways to decrease your tax bill? If so, you may be interested in the business mileage rule. This rule allows small business owners to deduct the cost of their business mileage from their taxable income. You must keep track of your business mileage to qualify for this deduction. You can do this by keeping a monthly record of the number of miles you drive for business purposes.
It’s essential to remember how to correctly record commute distance, significantly if you’re delayed by other activities when you arrive at your home. Write in building your calendar (or other everyday record or app such as MileIQ) your commuting mileage like: “home to office, 10 miles, commute”.
Ugh! Nobody Likes that
We, positively, detest commuting mileage. You should too.
It’s personal. It’s not deductible. But, with knowledge, it is avoidable.
Let’s stop commuting, and instead make those trips from home to your office deductible.
The legal system has a couple of options to decrease commuting from your home to the office that you work from:
- Create a temporary business stop on your way to the office.
- Set up a home office that satisfies the requirements to be a principal office.
Temporary Business Stop Strategy for Business Mileage
Temporary Business Stop (TBS) is a unique strategy for eliminating commuting. TBS is a strategy that allows a business to stop operations for a brief period. During this time, the employees would work from home. This would enable the employees to avoid commuting and save on transportation costs. The business could also save on rent and other occupancy costs. The TBS strategy could be used for companies closing temporarily or relocating.
The more widespread tool is called the office-stop strategy. In this instance, the stop allows you to deduct the commute from your home to your office as a deductible business trip.
Example 1.
Sam, the property damage and casualty insurance agent, doesn’t claim a home office deduction. He must file a claim for a property before the insurance company issues the policy, so he stops by to take photographs. Sam’s trip from his home to the property and then from the property to his downtown office produce business miles.
Sam drives from his home to his office, and it’s a non-deductible trip. But according to IRS guidelines, only the first business stop from your place of residence to a place of business counts as your principal office. If this is the case, the IRS classifies your trip from your home to that place as the first stop, and that trip is a non-deductible commute.
Way out for home offices
If you have a home office and a principal city office, you do not need to leave your home to get to your city office. Having to work from the home office before you go is entirely unnecessary. To qualify for the criteria, the home office must be legal as a principal office.
For instance, you have an administrative office in your residence that qualifies as a permanent office. You drive 11 miles from your home to your city office, work all day in your city office, and then drive the 11 miles back home. This 22-mile return trip from your city office is deductible as business mileage.
The simple answer to the problem is that you can analyze the two methods for eliminating commuting; you’ll find that the most effective way is to set up the administrative office in your residence.
Additional trips
Now moving to the previous query about business and personal mileage, “What happens to those trips that start and end at your city office?”. If your city office of a long-distance business journey ends up in a specific business destination, you have business mileage. But if the business journey is for personal reasons, you have personal mileage.
If your route includes both business and personal stops, and the individual visits are not too far away, you can overlook the personal stops and count all the mileage as a business.
For instance, if you are going 10 miles to buy office supplies, but you set off for a 1-mile detour to pick up your dry cleaning before reaching your destination, the trip to the office supply store was 9 miles, and the return trip was 19 miles. This act is considered de minimis, meaning that you could count 19 miles as business mileage.
Your mileage log may look like this: For office supplies, I travelled to Staples at 19 miles, including a minor 1 mile for dry cleaning.
Methodology for sampling your Business mileage
One of the critical criteria for successfully filing your mileage log with the IRS is that you make personalized notations over at least three consecutive full months.
Keeping the mileage log for three months is necessary but making a more extended mileage log is far better.
Points to remember About Business Mileage
Your mileage deducts when
- Driving from home to business stop and back to the office
- Going from residential office to city office
- Moving from one business stop to another business stop (or it could include a de minimis visit)
- From home to a business stop and returning to home office
- Driving from house to main city office
Rather than driving a great deal of personal mileage, you will save significant personal or commuting mileage by establishing a principal office at home. If you have any questions on how to implement these strategies in your own business, reach out to our team at 281-440-6279.
