Tax deductions: mileage and parking

[Ervin Farkas]

Hello from a newbie business owner!

I am a small business owner, sole proprietor. I am finding all sorts of good information on how to deduct business expenses as an employee (expenses not reimbursed by the employer)... but nothing about what I can do.

So far I found that if I had an office (which I don't) away from my home, I could NOT deduct trip costs to my office, but I can deduct travel costs to my clients. On the other hand I am reading about some limitations, expenses have to be above a certain dollar amount or percentage of income.

Could someone please explain how this whole thing works?

Parking costs should be fully deductible - at least according to my logic. Please confirm.

Thank you,

[Garrett Low]

Ervin, as always the first advise is to consult an accountant. As it has been explained to me and as I have been doing for over 20 years of being a small business owner, don't think of it as a deduction or not. Think of it as a business expense. You cannot claim normal mileage required to get from your home to your normal office (in other words commute miles) as a business expense. Mileage required to get from your normal work location to a specific project location is a business related expense. There are some laws that could apply if your business is a second job and you go from your primary job to your second. Those miles are considered an expense.

How you account for the expenses related to your miles will depend on how you have declared how you will be accounting for vehicular expenses. Do you take actual vehicle costs or do you take the standard mileage cost? One will allow you to depreciate your car that you use and one will not. Once you put a vehicle into service for your business you must decide on how you are going to account for the expense and you cannot change the method. Also, you should be keeping a mileage log so that you have written proof of your expense.

So if you are now more confused than before reading this, you know why you need to talk to an accountant.

Good luck.

[Jim Michael]

Ervin,

By all means take this type of thing up with your accountant. And if you need a reference to a great accountant in the Atlanta area, pm me.

Jim

[Chris Davis]

A very wise tax attorney once told me: "If you think something is remotely deductible, deduct it." Worse case, during an audit a deduction may be found ineligible and you'll simply pay the tax you would have paid had you not deducted it. You do not get fined or go to jail for a bad deduction.

[Don Bloom]

Ervin, +1 for getting a compentant accountant who is versed on home based businesses. Having been doing so since 1971 when 99% of accountants and even the IRS didn't really know much about deductions for a HBB, I have run thru the mine field and even went thru an audit that would up costing me quite a bit of money. Live and learn.
I could answer your questions and give some advice but on advice of my lawyer, my accountant and my wife many years ago all I will say is this. Keep reocrds of everything and find a GOOD accountant. While it will cost you a bit of money to hire said accountant, in the long run it will save you time, money and grief and aggravation.

[Ervin Farkas]

Thanks for all the advice.

Accountant is out at this stage of my business... would eat up half my profit. Maybe down the road...

I am a small business owner with no other job - this is my sole income. No office outside of my home, so all business trips are to job sites. I use my personal car for business without designating it as being in use exclusively for business. I will use the standard IRS mileage rate, which is 56.5 cents per mile for business miles driven for 2013, keeping a good record of where I went every day and write down the mileage.

Next question: I would think that in case I charge for trip (in addition to the actual video work), that particular trip would not be tax deductible... correct?

Thank you,

[Shaun Roemich]

Originally Posted by Ervin Farkas

Accountant is out at this stage of my business... would eat up half my profit. Maybe down the road..

Even in down years, my accountant SAVES me money. EVERY year. And mine apologizes for being expensive. Mine is a CGA. I pay for that designation but darn she's good!

[Garrett Low]

Hi Ervin, again, you should not think of the mileage as a "tax deduction". It is not and as you've discovered you won't find it in the tax codes for income tax. It is a business expense. The distinction may seem small as long as you a are a sole proprietor business but it is a distinction that needs to be made. The reason is that it is reported on the business schedule under expenses and needs to be accounted for it there. That is important to answer your "next question". If you charge your client for travel, yes, you do still account for the mileage as an expense. This is where it becomes clear why you can't think of it as a "tax deduction." The way it works is you still have an expense for mileage. But you also have additional income from what you charged your client. If you don't explicitly charge your client for a line item of travel, it is implied that whatever you charged them includes travel expenses. You could charge them more than 56.5 cents per mile. If that is the case, you would not realize the entire charge for travel as profit, you would show the amount charged for travel less the 56.5 cents per mile as the net profit. That net profit is what goes into your taxable income not the entire amount you charged for travel.

I have the advantage of having my father as my business accountant so yes I do take a lot of this for granted. His business specializes in business planning and accounting for other businesses. Even though many of his clients are large corporations he also has a number of small businesses and sole proprietor businesses. One of the keys to a good accountant, as Shaun mentioned, is that they will actually save you money.