One of the hardest deductions to capture as a business owner is your vehicle and travel costs. These records are needed for tax purposes, but most business owners miss out on these key deductions because of the strict documentation requirements. Here are 4 easy steps to simplify your vehicle and travel costs:
1. Use an app!
Its 2019 and trust me… there is an app for everything. If you use a vehicle for business, you usually need to read the odometer for EACH business trip. This can be a daunting task. Apps like MileIQ can use the GPS on your mobile device to read the exact travel distance for each trip, taking note of the time and date as well. Then all you have to do at the end of the day or week, is teach the app which drives are for business use and which are for personal use. It’s as easy as swiping left or right on the trip, and eventually will auto categorize familiar trips. One of our clients has deducted an average of $9,500 of income PER YEAR off his tax return using this app (we are talking $3,990 in tax savings per year from an app that costs $5.99 per month (and is also tax deductible)!
2. Use the “Sampling” method
The IRS permits you to use a system known as the “sampling” method. This means if you have records for a portion of the year, that are consistence with your behavior the rest of the year, for example a quarter (Q1: January to March), you can carry the data forward for the rest of the year. Say your travel costs or mileage are consistent month to month, and you’ve categorized your January miles or travel deduction as 50% business use & 50% personal, you can use this sample as proof of 50% business use for the entire year. (Just be sure the sample you use is representative of your spending/driving patterns for the year).
3. Scan receipts
We all know this… if you do not have receipts to back up your bank or credit cards statements, in the eyes of the IRS… it NEVER happened! Instead of stuffing receipts in your wallet, just take a picture of it and store them in a separate folder. Another good strategy is to create a separate email (i.e. expenses@jbscorp.net) and send the pictures of the receipts to the email at the end of the day or week.
4. The $75 travel rule
When you travel or are out in town for business, you do not need to retain receipts for expenses under $75. The only thing to remember is that it does NOT apply to lodging; therefore, you still have to keep receipt of your hotel/lodging expenses. Fortunately, there is almost always email proof… so like the last post, try using a specific email for keeping track of expenses and booking hotels/lodging!
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