If you must drive as part of your job, you may be qualified to deduct the costs on your federal income tax return. If you qualify, get ready to document your travels as supporting evidence in the event your taxes are audited.
1. Make Sure You Qualify for Mileage Deduction
A taxpayer can take the mileage deduction for travel from the office to a work site, from the office to a second place of business, or for driving on business-related errands.
- There are two methods of claiming the mileage deduction.
- To use the standard deduction, you must keep a log of the miles you drive for work.
- To use the actual expense method, you must save all the receipts of expenses related to driving for work.
2. Determine Your Method of Calculation
A taxpayer can choose between two methods of accounting for the mileage deduction amount:
- The standard mileage deduction requires only that you maintain a log of qualifying mileage driven. For the 2019 tax year, the rate is 58 cents per mile. The rate for the 2020 tax year is 57.5 cents.
- The deduction for actual vehicle expenses requires that you retain all receipts and other relevant documentation relating to the costs of driving.
3. Record Your Odometer at Start of Tax Year
The Internal Revenue Service (IRS) requires a taxpayer to report the total miles the vehicle was driven in the tax year. The total mileage figure will be reported on Form 2106. Therefore, a taxpayer should record the vehicle's odometer at the beginning of the tax year.
58 cents per mile
is the standard mileage deduction for 2019.
If the vehicle is purchased during the year and is not new, then record the odometer reading from the first day it is deployed.
4. Maintain Driving Log (If Needed)
If you choose the standard mileage deduction, you must keep a log of miles driven. The IRS is quite specific on this point:
- At the start of each trip, the taxpayer must record the odometer reading and list the purpose, starting location, ending location, and date of the trip.
- At the conclusion of the trip, the final odometer must be recorded and then subtracted from the initial reading to find the total mileage for the trip.
This log must be maintained regularly. The IRS does not care for ballpark figures.
5. Maintain Record of Receipts (If Needed)
If you choose the actual expense deduction, the mileage log isn't needed. Instead, keep copies of relevant receipts and documentation. Each document must include the date, dollar amount of the service or service purchased, and description of the product or service needed.
6. Record Odometer at End of Tax Year
At the end of the tax year, the taxpayer should record the ending odometer reading. This figure is used in conjunction with the odometer reading at the beginning of the year to calculate the total miles driven in the car for the year. The information, including what percentage of miles driven were for business purposes, is required on Form 2106.
7. Record Mileage On Tax Return
When completing your tax returns, you'll list the total amount of miles driven on Form 2106, Line 12. This figure is calculated by the standard mileage rate for the year to determine the dollar deductible amount.
If you're using the actual expenses method, you'll need to organize the receipts of the expenses into groups including gasoline, oil, repairs, insurance, vehicle rentals, and depreciation.
8. Retain the Documentation
You must retain the documentation relating to a mileage deduction for at least three years.
If documentation is requested from the IRS to substantiate the mileage deduction, the taxpayer should make a copy of the records and file a personal copy.
To keep it all straight, create a new log for each tax year.