Maximize Your Tax Deductions Using The IRS's "Two Business
Location Rule"
Maximize Your Tax Deductions Using The IRS's "Two Business
Location Rule"
by Collin Almeida
If you're like most Americans, your automobile is one of your
biggest expenses. Gas, insurance, maintenance, and licensing all
add up to a generous portion of the average person's income, not
to mention the actual cost of buying or leasing a vehicle.
Wouldn't it be wonderful if you could write-off a considerable
amount of these expenses on your taxes? Well, if you own a
home-based business, you can. All it requires is some simple
documentation and you can start claiming thousands of dollars in
automobile-related tax deductions.
How many times have you gone to pick up office supplies while
you were out buying groceries? When was the last time you ran to
the bank to make a quick business deposit on the way to picking
up your children at school? Chances are you do these things all
the time, but you probably never realized that those miles could
be claimed on your taxes. As far as the IRS is concerned, you
can claim the miles as a business expenses if the primary
purpose for your trip was company-related. Think of the plethora
of possibilities: making copies at the mall while Christmas
shopping, buying stamps on your way to pick up dinner, or
comparing prices on computers while you shop for a new DVD
player. All of these trips and plenty more could be legally
claimed as tax deductions.
In addition to errands, you can also claim the miles you rack up
while commuting to and from a regular job. If you have a
home-based business, your commute mileage can be deducted under
the IRS's "Two Business Locations Rule." According to this rule,
you can claim mileage accumulated driving - "from one business
location to a second business location". Here's how it works:
Before going to your regular job, handle a business- related
task for your home-based company, such as phoning a client,
checking e-mail, or balancing the books.
On your way to your regular job, make a "necessary business
stop." For example, you might run by the bank, the copy center,
or the post office.
Drive to your regular job. Reverse the procedure at the end of
the day. As long as you follow all four steps daily, you can
claim all those commuter miles. While there's no trick involved
in claiming these deductions, it does require additional effort
on your part. First, you must rearrange your schedule in order
to incorporate the business stops. While this may seem annoying
at first, most home-based business owners find that the
reorganization boosts their overall efficiency. For example,
instead of running a dozen separate errands during a week, those
can be combined into only a few, slightly longer trips, which
will save you time, energy, and probably gas.
Of course there's the second part: the record keeping. In order
to audit-proof these deductions, you will need to keep a
vehicle-use log. The log can be a simple notebook with columns
for destination, trip's purpose, and odometer reading. You must
complete the log for every car trip you make, not just the
business-related ones. It may seem like a lot of effort, but
each entry would take less than a minute to record and after a
week filling in the columns would become as much a habit as
fastening your seatbelt.
You're probably wondering if the deduction is actually worth the
inconvenience of rearranging your schedule and keeping a log of
all your car trips. Decide for yourself. If your round-trip
daily commute is only 10 miles, you can earn a deduction of
$3.45 every working day, almost $20 a week, over $1000 for an
entire year and that amount does not include mileage for
business-related errands. Basically not taking the time and
effort to claim this deduction is like throwing $10 out of your
car window every 30 miles!
Besides writing off your car's accumulated mileage at tax time,
you can also claim other automobile-related expenses. For
example, you can claim gasoline, insurance, parking fees, and
tollbooth expenses as additional deductions. Just keep all
receipts and documentation in order to protect yourself in case
of an audit.
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