Monday, January 11, 2010

Tax Tips for Writers #2: Business Miles Are Your Friend

It might not seem that business mileage is a big deal for a writer, but this can actually turn out to be a major deduction for any small business person. There are a few ways to handle this particular deduction, though, and you have to be careful about how you keep your records to make sure the deduction qualifies. (Again, keep in mind that you should get tax professional advice before implementing these suggestions.)

The thing to keep in mind is that when keeping records for business driving purposes, you get to identify what the "primary purpose" of the trip is. If you post flyers for editing/proofreading services (assuming you offer them) on a local community board at your grocery store, and you travel every week to make sure that the flyer is still up (or perhaps replaced, if it has those little tear-away tabs at the bottom), then you can declare that as the primary purpose of your trip. It is perfectly legal if, on that same trip, you also get groceries - the government doesn't need, nor does it care, about any secondary purposes of the trip. It just needs to know the primary purpose.

To figure out the best way to get your deduction, you should track three things:
  • Total mileage in 2010 (record odometer reading on January 1 - or now!- and on December 31, then subtract)
  • Total business miles (see below)
  • Total vehicle operating expenses
Now, there are two ways to establish how many total miles end up being deductible.
  1. You can record every single business trip and add them up at the end of the year.
  2. For a period of 90 days (any 90-day period over the year should work, where you're using the vehicle normally), you record every usage of the vehicle. Indicate if each use is "business" or "personal." Calculate the % of business usage during those 90 days. This is your business usage percentage. Multiply the total 2010 mileage by the business usage percentage. This gives the total business miles.
I find the second method to be much easier to track.

The deduction can be figured two different ways, as well:
  • Record your vehicle operating costs (having a credit card solely for vehicle expenses is a good way of doing this), and multiply directly by your business usage percentage. This is the amount of vehicle operating cost that is deductible as business use of vehicle.
  • Take your total business miles and multiply by the amount per mile dictated by federal law. ($0.55 for 2010)
You are allowed to use either of these systems, so should record all of this and figure out which method gets you the best deduction, then use that. This can amount to thousands of dollars in deductions, which can count against other income sources (such as your W-2 job) if it exceeds the amount you made from writing.

The problem with business mileage is that "commuting miles" - travel from home to work - is absolutely not deductible. If it were, everyone would get major deductions. It's just not deductible.

However, if you have business travel on the way to your job, then the whole trip counts. For example, I know someone who is a roofer. On the way to his job, which is a half-hour drive, he stops by his union offices, which is near his house. His work day, therefore, starts at his first business stop - the union offices - and the mileage from the union offices to the job site is deductible business travel.

So, here's the question:

If I run a home-based business (such as writing), does the travel from my qualified home office to another job location count as deductible business miles?

The short answer is that there has never been an official ruling on this interpretation of the law. Travel from "residence" to a work location is not deductible, but does the home-based business count, in this case, as your residence?

There is a strong case (complete with relevant tax law/ruling citations) to be made in favor of it, though. However, this only works if you are actively engaged in work at your home office prior to traveling to your work location. If you eat breakfast and immediately go to work, it doesn't count. But if you eat breakfast, head into your home office to work for a half hour, then go from your home office to your other job, the argument seems fairly sound. This takes work. My mileage log shows some days where I don't successfully meet these criteria, and on those days I just am not able to qualify the travel as deductible, so I record it as personal.

This also works if you've done the work to qualify as a business, and to make sure you have a legitimate home office that qualifies under the IRS code. (Information on that will be coming shortly.)

What's really nice about this interpretation is that it gets you in the habit of being actively engaged in your writing, preferably twice a day (before and after your W-2 job) to maximize the deductible miles.

1 comment:

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