Mileage Deduction

For someone who works 1099, independent contractor, business miles can be one of your biggest expenses when you complete your Denver Tax Preperation. Every time you drive to a client’s office or to a job, you have business miles. Every time you drive to the bank, or the office supply store you have business miles. That is if your self-employed or work as an independent consultant. There are two mileage rates for 2011. From January through June, the rate was 51 cents per mile. From July through December, the rate was 55.5 cents for every business mile. For 2012 the mileage rate is 55.5 cents per mile. Now in order to take the mileage deduction, the IRS requires you to have a mileage log. They ask if you have written proof as part of the income tax preparation. The IRS wants to know how many miles you put on your truck or car, and how many of those miles are for business. It’s a good idea for you to write down your odometer reading at the first and last day of the year. If you forgot to write it down, look back through old receipts for car repairs and oil changes.

Business Mileage

Now I suppose you forget to write down your business miles for last year. Well pull out a calendar and your pay stubs. Figure where you went. Google map the distance of the round-trip. Now figure out what days you went to that location. Write those miles down on the calendar for each day you went there. Don’t go crazy. If you try to claim you drove 30,000 miles you better be able to back that up. Only take the days you can recollect, such as when a jobsite started and ended and what days of the week you were there. Once you have figured out as much as you can, add up all the miles you wrote in the calendar up through June. Then add up the miles for the second half of the year. Remember, the mileage rate changed in the middle of 2011, and when we prepare your tax return, the IRS wants us to report how many miles you drove for work in each half of the year.


And Remember this, you can’t just guess at your mileage. Nobody drove exactly 10,000 miles last year, and nobody believes you drove exactly 1,500 business miles. Really, it wasn’t 1522 miles? Round numbers are a red flag for the IRS. Do yourself a favor. Buy a pocket calendar and keep it in the door of your car. Everytime you drive for business write down the miles. The last thing you want is a five thousand dollar tax bill when the IRS denies your mileage claim. Because if they audit you, they will want to see your documentation. If the IRS disallows your mileage claim, not only will you lose the deduction, but the amount of the deduction will be considered income. At a minimum, you will owe taxes on that income, plus interest and penalties. Worse, the IRS might decide to look at other years you took mileage and deny the deduction for those years, too. That’s why Tax Preparation Denver tells all of our clients to buy a pocket calendar and use it. Get in the habit of writing in the calendar every day. Enter the odometer ever morning. Write down where you went if you drove for business.

The mileage deduction can be one of your biggest expenses when it comes to lowering your tax bill. But the IRS also knows this is an area where people like to fudge numbers. That’s why it is so important to keep a mileage log. The mileage log is the proof you need if the IRS ever questions you. It’s such a vital part of preparing business taxes that you must get in the habit of recording your mileage. Protect yourself and make sure your tax preparation is unimpeachable.

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