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In addition to my day job, I provide IT-related services to a client base of small businesses, and expect to to earn \$7,000 - \$10,000 this year outside of my day job. This is my first tax year tracking business expenses related to my side-business, which I plan to write-off against my income at year-end.

I've been tracking of my expenses on a weekly basis, but am confused as to how to calculate vehicle expenses. My day job reimburses mileage at .37 per mile, but in tracking my mileage and attaching gasoline receipts to my weekly side-business expense sheet, I'm confused how I should calculate vehicle expenses. The way I see it there are two approaches :

1) Calulate my vehicle expense at .37 per mile for milage created traveling to client offices.

Q) If I do this, my vehicle expenses obviously are greater than the gasoline receipts. How does this work come tax time?

2) Calculate vehicle expenses based directly on gasoline receipts.

Q) How do I differentiate between personal vehicle usage, and business usage if I just attach all of my gas receipts?

Nick
No. of Recommendations: 0
1) Calulate my vehicle expense at .37 per mile for milage created traveling to client offices.

Q) If I do this, my vehicle expenses obviously are greater than the gasoline receipts. How does this work come tax time?

You deduct the 37 cents per business mile and ignore the gasoline receipts.

2) Calculate vehicle expenses based directly on gasoline receipts.

Q) How do I differentiate between personal vehicle usage, and business usage if I just attach all of my gas receipts?

Either way, you need to keep track of your business mileage and total mileage during the year. If you want to use actual expenses, you need to keep track of ALL of your gasoline, oil changes, maintenace, insurance, repairs, and other car related expenses during the year. Then you total those up and apply the business use percentage from your mileage figures.

You might also want to post this over on the Tax Strategies board. There are several tax pros who respond to posts on that board.

--Peter
No. of Recommendations: 1
The IRS gives businesses a choice in how to figure mileage expenses ---

actual cost (according to IRS rules) or an IRS decided cost of so many cents per mile.

For very small businesses, it's often lots simpler to just use the per mile figure. Remember you need to be keeping a written diary of how you use your vehicle to justify even that expense for the IRS.

Seattle Pioneer
No. of Recommendations: 0
If I infrequently use my vehicle for business use and I am just doing the straight mileage method, it is sufficient to log the number of miles with the date, reason for trip, and person met with on my computer instead of tracking every single mile in a written log book?

knight427
No. of Recommendations: 0
If I infrequently use my vehicle for business use and I am just doing the straight mileage method, it is sufficient to log the number of miles with the date, reason for trip, and person met with on my computer instead of tracking every single mile in a written log book?

That is more than sufficient - it qualifies as wonderful!

--Peter
No. of Recommendations: 0
<<If I infrequently use my vehicle for business use and I am just doing the straight mileage method, it is sufficient to log the number of miles with the date, reason for trip, and person met with on my computer instead of tracking every single mile in a written log book?

knight427>>

IRS Schedule C specifically requires you to attest that you keep written records of your vehicle use. For more than that, see a competent tax adviser.

Seattle Pioneer
No. of Recommendations: 0
<<That is more than sufficient - it qualifies as wonderful!

--Peter

>>

Part IV of Schedule C asks the following:

Of the total number of miles you drove the number of miles driven for 1)business 2) commuting 3) other

Do you or your spouse have another vehicle available for personal use (yes/no)

Was your vehicle available for personal use during off duty hours (yes/no)

Do you have evidence to support your deduction (yes/no)

If yes, was the evidence written (yes/no).

Seattle Pioneer
No. of Recommendations: 1
Pretty good record keeping is essential. Your appears to be close. In my experience, this may not be enough to satisfy a pesky auditor. I recommend a handwritten log since a computer log can be done at anytime, while a handwritten one is easy to see that each entry was done at different times.
Also, on January 1, write down the mileage reading in your car and keep any receipt for maintenance that show a close mileage to the one on January 1.
For every time that you use your car for business, beside the information that you are already keeping, write down the beginning and ending mileage. And on December 31, close the log writing down the mileage again.
This would satisfy the most pesky of auditors, or at least give you enough base to claim that he is not been fair in their audit.

RPons
No. of Recommendations: 0
Based on what everyone is saying, I'm hearing that it probably makes most sense for me to calculate milage at .37 per mile. The reason for this is that it's a side business, and that it's just easier since I use it for personal driving a significant portion of the time. Right now, I'm just keeping a record of the miles traveled to reach a customer site, and attaching gas receipts for the week to the time sheet.

With that in mind, I should start recording the following:

1) Per year: Vehicle milage per per year on Jan 1.
2) Per trip: Vehicle starting, and ending milage per trip.
3) Per trip: starting location, and ending location.
4) Per trip: purpose of visit, and who I met with.

Is this sufficient?

Thanks,

Nick
No. of Recommendations: 0
Nick

That is almost enough. Also add the mileage on December 31, that way you know how much it was used during the year. And just in case, any receipt for repairs or maintenance that shows the odometer reading as close to january 1 as possible.

RPons