One of the expenses I am most frequently asked about is automobile expenses. There are two ways to get a deduction for the business use of your vehicle. You can deduct actual expenses or you can deduct based on miles driven for business.
Deducting actual expenses is generally more difficult and less advantageous than deducting miles unless you have a vehicle that is 100% dedicated to business. If your vehicle has personal use in addition to business use you will have to be able to track how much gas you used for business trips and you will still have to track miles so you can allocate items like insurance and repairs that can’t be attributed to any specific drive. The big advantage to this is that you can depreciate your vehicle using this method.
The easier approach is to deduct based on your business miles. The IRS releases a rate for each year that specifies how much you can deduct for each business mile driven. This amount is meant to include gas and all other expenses of operating a vehicle. For 2016 this rate is $0.54 per business mile.
In order to take the mileage deduction, the IRS requires you to track your total mileage, the dates of your business trips, the places of your business trips, and the purpose of your business trips.
The IRS does not allow you to estimate your business miles, so if you are audited and that is what you have done, you may have a very large and valid deduction completely denied.
In the past I have always recommended clients to keep a small notebook in their car and write down every business trip as those trips are completed. This is the best way both in order to make sure you don’t leave anything out and to convince an IRS agent your numbers are truthful.
Now there are apps that you can use instead of an old fashioned notebook. One I can recommend that is available for both Apple and Android phones is MileIQ (http://www.MileIQ.com). If you check out MileIQ and think it is right for you use the code PCOO550A. In order for the code to work you must sign-up on the web (instead of in the app) and unfortunately it only works for annual plans.
Please let me know what you think of the app, or if you have other apps you recommend so I can include them here as well.