Auto Mileage and Taxes

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Driving a car
Posted by: Gary Massey Comments: 0

Tax deductions for auto mileage is one of the more common questions that we receive at Massey and Company CPA. There is no doubt that tax deductions for cars, trucks and motorcycles are on the minds of business owners, contractors, real estate investors, real estate agents or anyone else with a “side gig.” And that makes sense, because mileage for business is one of the top deductions for reducing taxes.

Every mile driven for business (including going to meetings, the bank or the post office, visiting clients or customers, checking on a property, picking up office supplies, or trips to the airport for business travel) is deductible. And tax deductions reduce your tax bill at year-end.

How Much Can You Deduct for Auto Mileage?

Tax deductions for mileages are computed as the number of business miles, multiplied by the standard mileage rate. This standard mileage rate changes every year.

The IRS announced the federal standard mileage rates for 2023:

  • 65.5 cents per business mile, which is up 3 cents from the midyear increase for the second half of 2022
  • 22 cents per mile driven for medical or moving purposes for qualified active-duty members of the Armed Forces
  • 14 cents per mile driven for charity

Remember, however, that the IRS does not let you include your commute to work in the miles you are able to deduct.

How to Track Your Auto Mileage

In order to claim a deduction for business miles, the IRS requires you to document your miles. You can do this by using a mileage log template, a handwritten mileage log, or a mileage-tracking app. These records must be compiled at the time of the trip, not after the fact. And they must include:

  • the amount of business mileage for each business use
  • the total mileage for the tax year
  • the date of each business use
  • the business purpose of each business trip

Your CPA will need this to come up with your deduction at tax filing time.

And in the event of an audit, you will need to show how you tracked business mileage to the IRS auditor.

Try the MileIQ App

You may want to check out the MileIQ app, used by millions of people for automatic mileage tracking. With MileIQ, your smartphone will use Wi-Fi, GPS, and mobile data to track your business drives throughout the work week. According to the MileIQ website, “the app takes the tedious, detailed logging off your plate so that you don’t have to attempt to recall where you went, on what day, and for what purpose. This means you can focus on your business while making sure you’re getting the largest possible deduction for your mileage.”

We are able to offer the clients and friends of our firm 20% off an annual subscription to MileIQ. Just use this promo code: GMAS319A.

A True Story about a Business Owner Who Did Not Keep an Auto Mileage Log or Use a Mileage App

A recent Tax Court Case from 2022 tells the story of a business owner who did not keep a mileage log or use a mileage app. (Eze, TC Memo 2022-83, 8/4/22). The IRS audited his tax return. During the audit, his business miles were denied, resulting in additional taxes, interest and penalties. Here is why the auditor rejected the business miles on the return

  • The mileage records were not contemporaneous. They were created at the time of the audit, solely for use in the IRS examination.
  • The mileage records did not identify specific clients.
  • The records seemed suspicious. For example, the taxpayer asserted he visited the same address in Manhattan on January 1 of each year; that he visited the same address in Brooklyn on January 4 of each year; and that he visited the same address near LaGuardia Airport on January 13 of each year.
  • Odometer readings were not contemporaneous. Instead, he prepared them during the IRS examination, keying the dates and mileage to the dates and destinations shown on calendars. When asked how he kept track of start and finish odometer readings for hundreds of trips, he said that he jotted them down on scraps of paper (since discarded).
  • The descriptions of the business purpose were all the same, a vague reference to “business meetings.”

This is exactly what you should NOT do!

Instead, keep a record every day of business miles, or use an app, Make sure that your records include the specific business purpose of the trip, the date, and the odometer reading. With this information in hand, you will be able to reduce your taxes and you will be protected in the event of an IRS audit.

For more information about the tax and accounting services we provide, visit our Home Page!

If you want our team to handle your tax matters for you, click here.

Massey and Company CPA is a boutique tax and accounting firm serving individuals and small businesses in Atlanta, Chicago and throughout the country. Our services include tax return preparation, tax planning for businesses and individuals, IRS tax problem resolution, IRS audits, and small business accounting and bookkeeping.

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