Know These Four Magic Business Mileage Rules
Parts of this article are published with permission from?Bradford Tax Institute, ? 2021 Daniel Morris, Morris + D’Angelo
When you know the rules related to business mileage, you
- Protect yourself in the event of an IRS audit, and
- Pay less tax.
Take Henry, for example. Before he knew the mileage rules, he deducted 30 percent of his SUV’s cost. Once he learned the rules, he deducted 92 percent.
Or look at poor Mark; he lost almost all his vehicle deductions in an IRS audit. Be like Henry! Here’s how…
Start with this brief four-question quiz on the mileage rules that apply to your business (regardless of business type).
Question 1.?To help manage your business, you have an administrative of?ce in your home that you deduct on your taxes. To deduct the trip that takes you from your home to your of?ce outside the home, you must ?rst use your of?ce in your home. Thus, you need to go into your home of?ce and make a phone call or boot up the computer and check your emails so that you can deduct your trip from your home of?ce to your downtown of?ce. (True or False?)
Question 2.?You have no deductible of?ce in the home, but you do have an of?ce outside the home. You stop at the grocery store on the way to your outside-the-home of?ce to buy cleaning supplies for your of?ce. You may deduct the mileage from the grocery store to the of?ce as business mileage. (True or False?)
Question 3.?You have no of?ce in your home that you can deduct, but you do have an of?ce outside the home.
While you are at home, you remember that you need a new printer cartridge for your of?ce printer. You jump in your vehicle and drive to and from the of?ce supply store, where you buy a printer cartridge. This trip produces deductible business mileage. (True or False?)
Question 4.?You operate your business with no of?ce that you can deduct. That is, you have no deductible of?ce in the home and no deductible or other of?ce outside the home. Your round trip from your home to a business meeting downtown is not deductible. (True or False?)
Answer 1.?Trip from Home Of?ce to Regular Of?ce
False!?You don’t need to do anything in your home of?ce before going to your outside-the-home of?ce, assuming both of?ces are for the same trade or business. The fact that you have a principal of?ce (your administrative of?ce) inside the home means the trip from your home to your of?ce outside the home is deductible.
Answer 2.?Stop at the Grocery Store on the Way to the Of?ce
False!?Your trip from your home to your regular of?ce is a personal commute. The grocery store does not meet the “temporary work location†de?nition, as this was not a place where you performed services. Thus, on this trip, your only business mileage is that mileage to and from the grocery store for business supplies that is in excess of your normal commuting mileage.
Example:?Your trip from home to your of?ce is 11 miles, but when you make the grocery store stop, the trip is 15 miles—eight miles to the grocery store and then seven miles to the of?ce. Thus, you have four business miles (15 minus 11).
Answer 3.?Round Trip to Of?ce Supply Store
True!?Here, we hang our hats on two rules. First, because you have an of?ce outside the home, the IRS allows business mileage for trips to temporary work locations. 2 Although the of?ce supply store does not rise to the level of a temporary work location for performing services, you have no reason other than business to make this trip.
Therefore, this mileage should qualify as “ordinary and necessary†business mileage.
Answer 4.?Round Trip to Business Meeting
True!?The no-of?ce taxpayer incurs a personal non-deductible commute to his or her ?rst business stop and from the last business stop back home.4 In this case, the business meeting is both the ?rst and the last stop, and it produces only personal, non-deductible commuting mileage.
Do This
Personal mileage means death for business vehicles.?Eliminate personal mileage. Install the correct type of home of?ce, called an administrative of?ce. Installation is pretty easy, just contact us and we can show you how to easily do this.
Less Desirable
If it is not practical for you to establish an administrative of?ce in your home, then you need to pay close attention to the temporary work location rule. This rule allows you to deduct trips from your home to a temporary work location and also to deduct trips from that temporary work location to your regular of?ce.
Planning note:?A temporary work location is not a stop at the post of?ce every morning to pick up the business mail on the way to the of?ce. You may deduct the out-of-way mileage to get to the post of?ce as business mileage, but the post of?ce is not a work location where you are rendering services.
Beware of Multiple Of?ces
You could have a number of regular business locations. In fact, you could have a regular location without being there every week or even on a set schedule.
For example, say a doctor has an of?ce, practices at a clinic, and also practices at a hospital. How many regular of?ces could this doctor have??Answer: three.
领英推è
Thus, with no principal of?ce in his home, the doctor’s trip from home to any one of the three—the hospital, the clinic, or the of?ce—would be a personal, non-deductible commute.
Best Practice
If this doctor wants to avoid the commuting problem, he needs an administrative of?ce in his home so that his trips from his home to any one of these locations will be deductible.
Work Location to Work Location
Regardless of whether he has an administrative of?ce, this doctor may treat the mileage he drives from his regular-stop clinic to the regular-stop hospital as business mileage. Here, he is driving from one work location to another.
Similarly, he treats business mileage on the trips to temporary work locations, including trips he makes from both his personal residence and his regular work locations.?For example, this doctor drives from his home to a patient’s home to make a house call. This trip from home to see the patient is a business trip to a temporary work location.
Temporary Work Location Rule to Know
The IRS de?nes a “Temporary Work Location†as any location where you perform services for one year or less.
Should you have a location to which you go year after year, that location can still be a temporary work location if you spend less than 35 workdays there during the calendar year.
Track Your Mileage
Mileage is the only acceptable method for determining the business and personal use of your vehicles. Make certain that you know when a mile is a business mile and when it is a personal mile.
There are two reasons to know the mileage rules:
- Knowledge of the rules can add big dollars to your tax refunds.
- Without knowledge of the mileage rules, in an IRS audit, you first lose deductions and then experience an increase in audit scope, because the IRS is now aware that you don’t know what you are doing.
Takeaways
When you know how to increase your business miles, you can add substantially to your bottom line.
Think of it this way:?You are going to drive your vehicles where you want to drive them, regardless of the rules. That’s the way you operate, whether for work or in your personal life.
Now, let’s step back and look at where you drive. What rule can you apply to turn as much mileage as possible into business mileage?
You have to take a serious look at the possibility of creating an administrative of?ce in your home. The administrative of?ce simpli?es the rules on temporary stops, and it eliminates commuting from your home to your regular business stops.
In perspective, the administrative of?ce can make your business mileage simple, easy, and pro?table. Finally, on almost every business and personal use vehicle, you need a mileage log… Period!
If you want to retain more of what you make and multiply your net worth while remaining tax compliant, contact us at Morris + D’Angelo. This is our Expertise!
Parts of this article are published with permission from?Bradford Tax Institute, ? 2021 Daniel Morris, Morris + D’Angelo
Daniel frequently provides Media Content via Workshops, Podcasts, and Printed Articles on topics like Bitcoin and Cryptocurrency, Wealth Preservation and Planning, Global Banking, and many other high-level financial topics that serve and demonstrate the Value of our Global Network that should be of interest to those who need Private High-Wealth Services.
If you would like Daniel to speak to you or your Professional Group and bring clarity about the new frontier of the new business tax law changes.?Please contact us.
Morris+D’Angelo is the industry leader for many High-Wealth Customers and Organizations.
707 SW Washington St., Suite 1100
Portland, Oregon, 97205
503.749.6300 – Portland Office
408.292.2892 – San Jose Office