Redeem Miles for Business: Crash Course

When you travel for work, you are entitled to a deduction for almost all the miles you drive on business. And while most self-employed professionals understand the need to keep track of the miles they drive for work, few actually keep an accurate mileage log on a consistent basis.

What is a deduction?

The U.S. Internal Revenue Service (IRS) allows anyone who commutes to receive a standard deduction of a set amount per mile for every business mile they drive. The IRS mileage rate in 2016 is set at 54 cents per mile. So, as you can imagine, this conclusion quickly adds up.

However, there remains quite a bit of confusion regarding the mileage deduction, in particular who can take it and what is required to document your trips.

Basically, you can deduct any trip you take on business, as long as it's not your trip to work (this is important) and you haven't been reimbursed for it.

The types of travel eligible for the deduction include: travel between offices; errands you need to complete during the day, such as trips to the bank, office supply store, or post office trips to the airport when you go there on a business trip, drive to any odd job you do to earn extra income, and visit clients. This is a long list, and by no means exhaustive. But this should give you an idea of ​​the sheer number of discs that can put money back in your pocket at tax time.

When tracking miles for tax reasons, there are a few key things you need to remember in order to maximize your deduction and avoid running into the IRS.

Make sure you keep a "simultaneous" log

The IRS requires you to record the start and end points, date, mileage, and reason for every trip you make. In addition, the IRS requires that your mileage log be up-to-date, meaning that it is kept in near real time.

As you can imagine, this is a lot of work and a lot of time. As a result, many people end up "rating" their miles at the end of the year. Avoid this at all costs because the IRS will not only reject such a journal, but will also subject you to fines and interest if it determines that your journal is not up to date.

You will avoid problems with the IRS and save a lot of time if you record your business miles daily or use a mileage tracking app to automate the process and record every trip as you go.

Make sure you track all your miles

Many people think that the deduction is so small that it's not worth the time to keep a detailed and accurate journal. It's easy to see why 54 cents doesn't seem like a lot of money, but those miles add up quickly.

Many professionals remember to log the longer trips they take in the course of running their business, but don't bother to log their shorter trips, thinking it's not worth the effort.

If you are registering your miles, take a look at your past logs. Have you documented your trips to fill up on petrol? How about a trip to a coffee shop to bring coffee to a client for a meeting? Or trips for office supplies, to the post office or to the hardware store.

Even though these trips seem short, remember that a trip to a place one mile away actually costs $1.08 in round trip deductions. This multiplies throughout the year. That's some serious tax savings.

If possible, create a home office

While you may receive a tax deduction for the work miles you drive, you can never deduct travel expenses to and from work. This means that you cannot deduct travel expenses to and from the main office. If you do not have a permanent office, you cannot deduct the cost of travel from home to your first business event or travel home from your last meeting.

However, one way to avoid the commute rule is to have a home office that counts as your main place of work. In this case, you can earn a mileage deduction for any trips you make from your home office to another place of work.

You can deduct the miles you drive from home to your second office, a client's office, or to attend a business seminar. The commuting rule doesn't apply if you work from home, because with a home office you never get to work because you're already there. If you follow the IRS guidelines, you can also deduct home office expenses.

Be sure to consult with a tax professional about your specific situation.

MileIQ is an app that automatically logs your trips and calculates how much they cost. You can try it for free. For more information on redeeming business miles, please visit the MileIQ Blog.