I do IRS and State Tax Representation and Tax Prep and Planning for taxpayers and small businesses in Western PA and the rest of the Commonwealth of PA.
Business mileage is an important tax deduction for many self-employed businesses, but especially real estate agents. Driving around showing homes to prospective buyers is how most successful agents spend the majority of their time. But all too often the data on this important deduction come to me wrong at prep time. Mostly because I get one written or quoted line, business miles traveled, often as a round number (which is how I know it's a guess) and nothing else. Also no, it wasn't "the same as last year," and I promise you I DO NOT have the figure written on the ceiling of my office, so don't look up there.
The Schedule C, which most real estate agents are filing, is more complex as far as vehicles is concerned because most small businesses are using their car for personal and commuting purposes as well as their business and those miles, maintenance/repairs and gasoline ARE NOT deductible. So, for the Schedule C filers I need the following:
The first thing I need to know is what car are you using for business, hopefully it's just one car. 2015 Honda Accord, 2017 Plymouth Voyager, and similar are what I'm looking for here. Not just "car" or "SUV" or "Truck" or "Van."
Then I have a series of 4 questions that need to be answered:
1. Was the business vehicle available for personal use during off-duty hours? In most cases that's a yes
2. Did the taxpayer (or spouse) have another vehicle available for personal use?
3. Does the taxpayer have evidence to support this deduction?
4. Is the evidence written?
For those last two questions, they want a mileage log or something kept and recorded as you go in real time (contemporaneous record), not something thrown together on April 14th at midnight. That record is what will save you in an audit. Many use the mileage recorder in Quickbooks, as one of the many smartphone apps like Mile IQ, which is what I use in my business.
Next, I would enter the mileage listing business miles, then commuting miles (if you have an office that you go to, your mileage between your home and the office is considered non-deductible commuting) and finally, other miles, which are basically pleasure miles. This section needs to be completed whether you take the simpler standard mileage deduction or your actual expenses.
The final part of the form is completed if you want to take actual expenses, or if you want the tax software to compare the actual expenses to standard mileage to actual expenses and give you the higher deduction of the two. Actual expenses would include such costs and expenses such as gas, insurance, repairs and maintenance, registration, tires, oil, loan interest payments, and lease payment portion. While it's taking the better of the two make sense, I think it's important to note that in the first year a vehicle is in service you start with the standard mileage deduction, you can choose between standard mileage deduction and actual expenses the remainder of the 5 year depreciable life of that vehicle, but if you start with actual expenses, you must stick with actual expenses the entire time that vehicle is in service.
Be smart, definitely take the mileage deduction you are entitled to, but provide it in the form the IRS (and often the states too) want it. As always, feel free to contact me with questions.
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