Most of the small businesses are wary of the mileage covered by their personal vehicles. As per IRS statistics, it is estimated that more than 14% of business expenses are made for vehicles. Hence, it is necessary to regularly track these expenses for calculating tax deductions that you can claim for them. Your vehicle can yield you massive tax savings in the longer run. However, you need an accurate mile estimator for calculating the deductions according to IRS rules and regulations. This tool helps in making the right calculations. Here, few calculations are defined to help in determining the amount incurred for business use of a vehicle.
1. Separating the Miles Covered for Personal Use:
IRS has clearly defined some expenses that fall under the category of personal expenses when calculating business mileage. It has set clear guidelines in this regard. The personal miles include weekend or evening use of a vehicle for vacations and outings with non-employee family members.
The commutation miles are also considered personal expenses if the taxpayer is traveling from home to the primary place of business or a company office. Also, if you drive from an office or a place of business for some personal purpose, it will be considered a personal expense. There is an exception to this rule. If a taxpayer works from a home office, driving for business will not qualify for deductions.
2. Finding the Value of Vehicle Usage:
It is important to establish the value of these personal miles covered by a vehicle. Here, you need to determine the income represented by the personal uses. In this context, you can use several valuations used as fringe benefits to help in preventing taxation-related problems. These include safe harbor cents per mile valuation fixed by IRS every year. This amount is multiplied by the number of personal miles covered in a year. These valuations also include Annual lease Value defined by IRS and Fair Market Value of the vehicle as computed by the company. A mile estimator app can help in determining personal miles for all these valuations.
3. Gather the Total Mileage Data:
For claiming deductions on business miles, you need to track and capture the mileage data of your vehicle in an accurate manner. You need to differentiate between business and personal miles.
Therefore, prefer using a smartphone app enabled with high-end features for calculating these expenses separately. Even when calculating these expenses for an employee, a company has to maintain the backup data for income imputed to an employee driving a vehicle. In the simplest terms, you need an app to capture accurate mileage of a vehicle for business use.
After capturing this data, you need to calculate the deductible miles using standard method or exact expenses method as defined by IRS.