As the year of 2022 winds down to its last days, our thoughts of family gatherings, gift sharing and taxes dance in our heads. Well, maybe not the tax thoughts but it is a good time to review a few planning ideas to help you feel more confident about your tax filing strategies for 2022.
Your automobile may be a shelter for tax deductions you haven’t considered in the past. As a utility for us to rapidly move from one location to another, automobiles are subject to a considerable number of tax laws and regulations that guide in their usage for tax purposes. For example, your personal automobile, when used for purposes of discharging your duties for your employer, is a tax-deductible asset. A few documentation steps are required to take advantage of this deduction such as a mileage log. By properly maintaining a mileage log that reports your daily travel, the location to which you traveled, the business purpose for the travel and any related expenses such as tolls and parking, you may help achieve your goal of deducting an activity that you performed anyway.
If you own a smartphone, such as an iPhone or Android, there are many apps that are free to help you track your mileage and provide documentation for your activities. The app I utilize for this purpose is found in the Apple App Store named “Mileage Expense Log & Tracker” by ChuChu Train (“yes”, this is the real name and “no” I did not simply make this up because its sounds cool!). Using the app is very easy. Every morning when I start my car, I open the app to record the mileage on the odometer as the ending mileage for the previous day noting where I had traveled and who I had seen. The app carries the ending mileage to the next day as the beginning mileage. This routine consumes about 1 minute from my day and meets the IRS standard for documentation of business use of my automobile.
Tracking mileage and expenses is only a piece of the benefit of using your automobile in a business. Annually the IRS publishes the allowed rates for business, medical and charitable purposes. In 2022, due to the significant increases in gasoline, the IRS changed the rates with a mid-year order that increased the rates for the second half of the year. For the period of January 1 through June 30, 2022, the rates are: business – $0.585 cents per mile, medical – $0.18 cents per mile and charitable – $0.14 cents per mile. For the period of July 1 through December 31, 2022, the rates are: business – $0.625; medical – $0.22; and charitable – $0.14.
Documentation is critical that you maintain corroborating evidence of your trips each day such as meal receipts if you met with a client for lunch or parking receipts if you traveled to a city requiring such charges.
Many of our clients ask questions such as: Can I depreciate my vehicle instead of claiming the standard mileage rates? Of course! However, it is a best practice to keep the mileage log to determine if you would benefit more from mileage rather than actual expenses. One caveat to remember is that electing the actual expense approach to deducting your automobile for tax purposes, you may not change in later years.
Medical mileage is that number of miles you travel from your residence to your medical provider. Documentation is rather simple in this instance since you will be receiving an invoice from your provider which discloses your name, date, city of the doctor’s office and other pertinent information.
Charitable mileage may be documented by obtaining any papers reflecting the activities of the charitable event such as a flyer, agenda, minutes of meeting, etc. As with everything in tax planning the success of the deduction being sustained under examination is directly related to the quality of the documentation you provide the IRS or other taxing agency.
You may use a simple piece of paper or a manual mileage log for your documentation purposes. No matter the type of system used, it is only as effective as you are diligent in its use. By documenting your automobile usage in great detail, you may just convince the tax examiner that you are detailed in other areas of reporting on your returns.
Make documentation of your automobile usage for business, medical or charity a goal for 2023. It is not too late to recreate your log for 2022. Contact a CERTIFIED FINANCIAL PLANNER™ professional to help you plan for your future in a tax-effective manner. The more you keep of your own money, the better life will be for your family. Hurry up, Santa, I am ready for a great Christmas!