Running a business can be expensive. The only consolation of this expense is the fact that the government will allow you to deduct your business expenses before charging you taxes. That makes keeping track of expenses and especially knowing what type of expenses can be deducted key.
One of the expenses I often see overlooked is the expense of your vehicle for business use. If you have a home based office it means that everywhere you drive could be considered to be a business expense (assuming it was for a business trip of course). I have found that over the past few years my accumulated miles driven for business purposes are quite a bit higher than I would ever have imagined.
Tracking your miles is quite simple. At the basics all you really need is the number of miles driven and the reason for each trip. Ideally you should have an odometer reading from both before and after each trip. Having the odometer reading helps to really solidify your numbers and prevents disputes by the government. I have seen plenty of businesses who do not use the odometer readings when collecting mileage for expenses so while it is recommended, you can potentially skip it.
The government hasn’t really provided very good guidelines for tracking your mileage and what actually consists of a business trip so it is up to you to decide. The government typically defines expenses as “reasonable” expenses, so in essence, having a good reason will typically ensure an expense is acceptable.
The other side of mileage tracking is knowing how much each mile is actually worth. This can be done in one of two ways. The first way is to track every single vehicle expense and divide by the number of kilometers in a year. This includes insurance, interest from leasing, oil changes, tires, gas, etc. The simpler way is the government will post at the end of the year, last years mileage rate. This is calculated by the government quite carefully as some type of average cost of driving in the year. Most major companies use last years number to pay their employee’s for driving so it can be easily concluded that this is considered to be a reasonable number.
Last year in Canada the proscribed rate exceeded $0.50 per kilometer. I ran the math on my vehicle to attempt to figure out my personal costs and came to around $0.42 per kilometer. So I have chosen to work with the government proscribed rate, not only does it mean my record keepisng is much simpler, I gain around 8 cents per kilometer that I am hopefully not spending.
I find that for myself I can often travel in excess of 3000 kilometers a year for business purposes. This means for me I am expensing over $1500 in mileage alone. The nice thing with mileage money is it feels a fair bit like found money. I never used to track my mileage until I discovered by accident how much I was spending on just driving alone. Remember, I don’t typically do much driving for my business so if you are some type of traveling salesman you can imagine how much more you are loosing by not tracking your miles.
Mileage is a rather easy expense to overlook and since you actually have to perform work ever time you drive it can be simple to forget how much money you are allowing the government to have. Always remember that the government has created these tax rules to benefit their citizens, not using them is just costing you money.
Image Credit: Anita363