Increase Your Tax Deductions Using the Business-Mileage Rule
Please clarify how to properly record commuting mileage, especially if you do other trips before and after stopping at your regular ofﬁce.
To record commuting mileage, you simply write in your appointment calendar (or other daily record or digital app):
home to ofﬁce, 10 miles, commute.
Ugh! We Don’t Like That
We absolutely, positively don’t like commuting mileage. You should dislike it, too. It’s personal. It’s not deductible. But with knowledge, it’s avoidable.
Let’s eliminate commuting and make those trips from your home to your ofﬁce deductible.
The law gives you two ways to eliminate commuting from your home to your outside-the-home ofﬁce:
- Make a temporary business stop on the way to the office.
- Establish a home office that qualifies as a principal office.
Temporary Business Stop
The temporary business stop strategy is designed for the home that contains no home ofﬁce. In this case, the stop turns a commute from your home to the ofﬁce into a deductible business trip.
Example 1: Sam, a property and casualty insurance agent, does not claim a home-ofﬁce deduction. He has to photograph a property before the insurance company will issue the policy. Sam’s trip from his home to the property and from the property to his downtown ofﬁce produce business miles.
Example 2: Sam, the guy from Example 1, drives from his home to his downtown ofﬁce. That’s a non-deductible commute.
Caution: If your only ofﬁce is in your home and that ofﬁce does not qualify as a principal ofﬁce, then the IRS labels your trip from your home to a business stop the “ﬁrst stop,” and that trip is a non-deductible commute.
Example 4: You have an ofﬁce inside your home that does not qualify as a principal ofﬁce, and you have no ofﬁce outside the home. You drive 17 miles to a business stop and then return home. Because your only ofﬁce is inside the home and it does not qualify as a principal ofﬁce, your 34-mile round trip is a personal non-deductible commute under the IRS’s ﬁrst and last stop rule.
If you have both a downtown ofﬁce and a principal ofﬁce inside your home, you have no commuting mileage from your home to your downtown ofﬁce. You don’t need to work in your home before you leave for the ofﬁce. You simply need an ofﬁce in the home that qualiﬁes under the law as a principal ofﬁce.
Example 4: You have an administrative ofﬁce in your home that qualiﬁes as a principal ofﬁce. You drive 11 miles from your home to your downtown ofﬁce, work all day in your downtown ofﬁce, and then drive the 11 miles from your downtown ofﬁce back home. This 22-mile round trip to and from your downtown ofﬁce is deductible as business mileage.
When you compare the two methods for eliminating commuting, you can see that establishing the administrative (principal) ofﬁce in the home is the easy answer.
Now let’s get to your original question: what happens to those trips that begin and end at your downtown ofﬁce? If your trip from your downtown ofﬁce is to a business stop, you have business mileage. If it’s to a personal stop, you have personal mileage.
If the trip from your ofﬁce involves both business and personal stops, and if the personal stops are not too far out of
the way, you can ignore the personal stops and count all of the mileage as a business.
Example 5: You drive 10 miles to Staples to buy ofﬁce supplies, but on the way, you take a 1-mile detour to pick up your dry cleaning. Thus, the direct trip to this business stop was 9 miles and your round trip on this day is 19 miles. The 1-mile detour is considered de minimis (in other words, minor). You may count the entire 19 miles as business miles.
In your mileage record, you would write something like this: round trip to Staples for ofﬁce supplies, 19 miles (1- mile side stop at dry cleaners, minor).
You should make your notations as to business and personal miles for a minimum of three consecutive months during the year so that you can comply with the easy requirement for mileage log sampling under IRS Regulation 1.274-5T(c)(3)(ii).
Key Point: Keeping the mileage log for three months works, but keeping the mileage log for the entire year is perfect.
You have deductible mileage when you
- Drive from your home to a business stop (such as visiting a prospect or colleague) and then drive from that stop to your downtown office;
- Drive from your home, which contains a “principal office” (think administrative office), to your downtown office;
- Drive from your downtown office to a business stop;
- Drive from one business stop to another business stop; or
- Drive from one business stop to another business stop and make a de minimis (minor) out-of-the-way personal stop.
You have personal, non-deductible mileage when you
- Drive from your home to a business stop and return home (assuming no principal office inside the home);
- Drive from your home to your first business stop and from your last business stop back home (assuming no principal office inside the home and no stop at your downtown office); or
- Drive from your home to your downtown office (assuming that you have no principal office at your home).
Best Strategy: You eliminate a big chunk of personal mileage when you establish a principal ofﬁce in the home. The administrative ofﬁce is an easy way to build a principal ofﬁce in your home.
If you’re like me, I absolutely find keeping track of my business mileage a pain in the… you know what… But, I keep reminding myself that no one ever accumulated wealth without paying attention to the details.
If you would like to discuss business mileage strategies, or need help to determine what’s important to pay attention to maximize your gains, please contact us at Morris + D’Angelo. This is our Expertise!
At Morris + D’Angelo, we believe that Tax Optimization is one of the most empowering and responsible things you can do to protect your growing financial assets. Tax optimization looks at a multi-year approach to minimizing tax costs. Tax avoidance is integral to tax optimization.
Parts of this article are published with permission from Bradford Tax Institute, © 2021 Daniel Morris, Morris + D’Angelo
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