As a dog pro CPA, dog walkers often ask me what types of business expenses are deductible on their tax returns. Vehicle-related tax deductions seem to cause the most concern and confusion. Common questions include “I use my car for both business and personal use. How much of my insurance can I deduct?” “I drive 50 miles per day picking up my clients’ dogs, taking them to the beach, and then returning them home. When does the mileage start to count and how much can I deduct for the gas and tolls I pay during this time?” “Because I’m driving around so much I had to buy new tires for my car. Can I deduct them?” These are great questions, and getting the answers right matters. So let’s take a look to clarify what about your car is—and is not—tax deductible.
Good records matter.
First and foremost, the records you keep are the most important factor in determining the tax deductible portion of your vehicle’s expenses. Your records don’t need to be pretty or even very sophisticated, but they do need to be accurately maintained. You don’t need a printout from a fancy computer program or an Excel spreadsheet to document miles driven for business purposes to justify the expense. A handwritten notebook or log is a completely acceptable record. There are also easy-to-use mileage apps like Mile IQ that make tracking business and personal miles easy. But whatever form of documentation you choose, you must at a minimum keep a record of these three things:
- Total miles driven
- Miles driven for personal use
- Miles driven for business use
Every time you get in your car, note the date, beginning odometer reading, end odometer reading, and how many and what kind of miles you drove—business or personal. If you did a bit of each (for example, a detour for personal errands on the way home after dropping off the dogs), be sure to note how many miles for each. (Apps like Mile IQ do most of this work for you.) If you do this every day (work and non-work days), you’ll have a complete and accurate record of the miles you drove and their purpose, to calculate the amount of your tax deduction at the end of the year.
How much can I deduct?
There are two different methods for determining the amount of your tax deduction. Comparing the two will allow you to choose the one that gives you the greater deduction.
- The standard mileage method
- An allocation of actual expenses
Method #1: The standard mileage method. The mileage method simply multiplies the number of business miles driven by a pre-set amount-per-mile the IRS determines each year. For 2016, the amount is 54 cents per mile. In order to calculate your deduction, all you need to do is multiply your total business miles driven by the mileage rate. Easy? Yup! For most dog walkers with vehicles more than a few years old, or for walkers stacking up a ton of business miles driving dogs to and from the park or trailhead, this method will likely result in the largest deduction.
Method #2: Allocation of actual expenses. Still, it’s best to check both methods to make sure you get the biggest tax benefit. To calculate the amount under the allocation method, you’ll still log all your miles. But in addition you need to keep track of the actual amount spent on:
- Garage rent
- Repairs and maintenance
- Property tax
- Rental fees
- Interest (if you are financing your car)
In addition, your accountant will compute depreciation on your vehicle, which is another deductible expense when using this method.
Again, record keeping is paramount. If you are of the George Costanza variety and like to keep receipts in your wallet, that will do the trick. But using a business debit or credit card is the easiest way to track gas purchases and the like—and your card is much less likely to blow away on a windy day.
How do I know whether miles are personal or for business?
Here are a few typical situations to help keep your personal and business miles straight:
- Travel from home to pick up or drop off your clients’ dogs is of course business.
- Travel between clients’ homes is business.
- Travel to the location you take your clients’ dogs for walks is business.
- Travel to the gym after you drop off your last dog but before you go home would be considered personal (and should be subtracted from the total miles driven that day for business purposes).
- Travel to the store to buy harnesses for your dogs would be considered business, but travel to the grocery store for food (unless it’s for making dog treats for your walks) is personal.
Situations in which mileage or a vehicle-related expense could be considered business or personal (or a bit of both) may require careful reasoning and judgment. Keeping good records and discussing them with your tax professional will help guide you when the answer murky, keeping you out of trouble and making sure you aren’t missing any legal deductions.
Marie Poliseno is the Managing Partner of Dollars & Scents Accounting Services. She is a Certified Public Accountant (CPA) as well as a professional dog trainer (CPDT-KA) and honors graduate of the SF/SPCA Academy for Dog Trainers (CC). To work with Marie on your financial and tax matters, e-mail [email protected] or visit www.dog-pro-cpa.com to learn more about her services.