Tracking your miles
One of the benefits allowed by the IRS to be deducted on your S-Corporation return is the federally generate Business Miles deduction (currently 57.5 cents per mile). But taking the deduction comes with some requirements from you to document the miles driven.
First, let’s examine what is considered a “business mile”. Much like any other W2 position you can be compensated for driving from the business location to meetings, events, and meals with business associates, and of course back to your office/workplace. However, the IRS does not allow you to deduct your commuting miles, meaning those you drive from your residence to your workplace and vice versa. This seems like a small thing but for self-employed people often the workplace is their residence, which can complicate the situation a bit. How do you determine the miles you’re driving from your residence, also your workplace, to your various meetings, and whatnot?
Thankfully it’s largely considered safe for self-employed people who work from home to consider miles driven from there to their various meetings and back a business trip; the one exception to take into consideration is if you’re returning to your home from a meeting, and NOT continuing to work afterward.
Next let’s ask the question: how do I track this easily and accurately? The tried and true old-world method is to buy a day planner or calendar and record the miles you drive each day for business, then tally those on a spreadsheet to hand over to your tax preparer. In modern-day, however, there is a viable option to replace this in an app called MileIQ (available on iOS or Android). MileIQ works by sensing when you are driving and then gives you the chance to “tag” your trip as business or personal. It can then produce a report to send to your tax preparer that shows not only the total business miles driven but the value per the current rate mandated by the federal government. You can even connect the app to your accounting software to generate this information in your books regularly (talk to your Formations representative about setting this up).
Either of these methods requires discipline from you, the taxpayer. You have to remember to log your miles; even MileIQ cannot discern between a business or a personal trip without your input so getting into the habit of recording designating your trip as business/personal as soon as it ends becomes paramount to accurate reporting and audit-proofing.
Not a Formations customer yet? Reach out to us to discuss more this benefit and how you can use it to your advantage.