As a sole proprietor you are entitled to some tax deductions. When you use you vehicle for business, such as when traveling to and from client offices for meetings and sales calls, for delivering products and services or using your vehicle for some voluntary and charitable work, you are entitled to deduct mileage from your income tax payment. Keeping a mileage log is the only way that you can substantiate your claim and have the deduction declared as legitimate. Recreating a mileage log is time consuming and needs precise accounting. The following steps will show how it is done.
- Buy a record book were you can log the date, odometer start and stop readings, the purpose of the trip, the total miles and break it down to business, commute and personal columns.
- Keep a photocopy of all receipts related to business trips together with your mileage log. The original copies of these receipts should be kept together with all the receipts for the taxable year. You can check the log against the receipts for parking, gas and toll gate receipts.
- Get in the habit of logging each and every trip that you make in the conduct of your business in your mileage logbook. Ensure that other staff using your vehicle for business purpose also religiously records their trips.
- The only mileages that are entitled for deduction are exact mileages consumed to travel from the office to the client’s address and back. Side trips for other purpose other than business should be logged as personal mileage. Swinging by your house after meeting with a client is considered a commute. You may have to use Google Maps or MapQuest to compute the exact mileage.
- Start transferring the mileage logs from the log book into a computer application such as Microsoft Excel. Recreate your handwritten log by properly labeling the columns and rows and entering the data one by one. It will be good practice to transfer the handwritten logs into Excel each week. You can program Excel to automatically compute the total mileage per column. Make sure that the data inputted in the application matches the handwritten logs. Give the worksheet the appropriate name and save it.
- The computer printout of your mileage log can be attached to your tax form when you file your income tax return. You can compute the right amount of tax deduction you can claim by multiplying the total mileage used for business with the current mileage deduction rate. For 2010 the amount is set at fifty cents per mile.
- You may still be entitled to mileage deduction for the previous year. Using your current Excel template, review all the receipts you have compiled for the previous year and recreate a mileage record. Ensure that the log is accurate. Use the online maps to compute distance traveled. Gather as much supporting material as you can so you can recreate the previous year’s mileage. Search your file for pieces of paper that may have been used to record mileage logs prior to your use of a record book.
Keeping an accurate record of your mileage can be tedious and time consuming but the amount of deduction that you will get is a good incentive for you to do it again for the coming year. Once you have established a good routine, keeping your mileage record will not be as laborious as before.