Creeper, Grim, and the IRS

As real estate brokers, or other real estate related occupations, most of us are in business for ourselves, aren't we? Part of parcel of that is trying to find and use to the best of our ability all of the allowable deductions we can come tax time, yes? Vehicle usage can be a big part of that for a real estate professional. How to best document how, when, where, and why you use your vehicles? How to prove when/where/why you spent money on them? How to deduct as much of all that as you can from your taxes?

So many questions! For you and your situation, the best answers to those questions - and more - should come from your accountant and/or financial advisor and/or tax lawyer.However, for whatever it's worth I'm not an accountant or a financial advisor or an IRS representative so take it all with a grain of salt, and don't forget: "your mileage may vary".{hehehheh} 

Deduction Method

There are two methods for deducting vehicle expenses allowed by the IRS - standard mileage rate method (a set amount per mile) and  the actual expenses method.

Mileage Tracking

I document my odometer on each vehicle 1x year (on New Year's Eve or Day, because the ending odometer readings for one year are the starting odometer readings for the next one), and then I'm tracking my actual business mileage by:

  • putting the business-only part(s) of a day's route into Google Maps,
  • printing that map to PDF, then
  • uploading the pdf into my Quickbooks Online account to an invoice under a "Mileage Tracking Client" where I:
    • input the actual miles (e.g. 30.3 miles round trip to the brokerage office for training; 47.6 miles round trip for visiting area builders; on so on) under a mileage - incurred (vehicle) service at the given mileage rate ($0.54 for 2016) ,
    • add in the memo area where I went, why, and with whom (if applicable), then finally
    • zero out the invoice with a mileage - tax deduction service at the same rate, just because I don't want to have open invoices for a fake client.

As I lay it all out like that, the tracking of the business miles sounds very convoluted, but after I got it set up in Quickbooks, it's easy peasy.

  • I do the Google Maps portion and the input into Quickbooks the same day I use the vehicle for business so that I don't forget where/how/why/with whom I went. 
  • I only have to look at my odometers 1x a year (for tax-related purposes)!
  • I set up reports in Quickbooks so that with a click of a mouse I can see my business mileage total for a given vehicle for a given year, and, for the Jeep, the exact amount (to date) I'd be able to deduct come tax time if I go with the standard rate method.

Actual Expenses

For the documentation of other vehicle-related items:

  • I get receipts for loan payments, repairs, etc. as a matter of course so I always have those on hand.
  • I track all fuel-ups via Fuelly.com so I have the amounts spent on gas for each vehicle tracked all the time as well, and, if needed, I could track each one back to bank statements which I download each month, also as a matter of course, when I reconcile each month.
    • So, no, I do not get and save an actual receipt with each fuel-up! Too much bother. :0)
  • I'll add up all the expenses at the end of the year and calculate $ amount to deduct based on % of business mileage vs. overall mileage for each vehicle. 

Which to use for which vehicle?

JEEP, k.a. CREEPER: I think I'm planning to use the standard mileage rate methodbut maybe not. I'm about 75% committed at this point. It's possible I could deduct much more the first few years using the other method, given my icky-ly high loan payments, plus being able to deduct for depreciation. After it's paid off and fully depreciated, though, chances are good the standard method would net a larger deduction and for many more years (I'm planning for Creeper to be with me for many, many years) so over time it'd be a wash. As I interpret things, you can change a vehicle from the standard to the actual method, and vice versa, but only if you use the standard method in the first year of service and each time you change you have to rework some things so overall it might be best/easiest to pick a method and stick with it for that vehicle.

Decisions, decisions.

Good thing I have until April of 2017 to decide!

Here's an example of why mileage tracking is so important --> I feel  like I've mostly taken my Jeep out on business-related drives so far this year, except for one personal 1,500 mileround-trip to/from Iowa. If I went with my gut, I'd say at least 60% of my miles have been business, but the reality is that of the 3,200 miles I've driven so far this year in that vehicle, only 540 of those have actually been for business, a mere 17% so far! Those personal trips to the grocery store, dog park, movies, out to dinner, enjoying offroad trails, etc., etc. really add up quickly.

Sadly, the IRS isn't going to care about how I feel about my vehicle usage, they only want the documented reality view. 

TRIKE, k.a. GRIM: For the motorcycle, the decision is easy because the I only thing I have to decide is will I or won't I. If I will, the method has been chosen for me - motorcycles are simply not eligible for the standard mileage rate method. I'll have to use the actual expenses method with documentation for gas and maintenance, tracking of loan payments, calculation of depreciation, and so on. Then I'll also use the same actual business mileage tracking method so that I can determine the % of all that to deduct.

Depreciation Calculations

This will be entirely new for me this year, but the IRS has forms, tables, instructions, etc., all meant to make my life easier in that regard, right? Right?! {hahhahhhahhha}

How much of the yearly depreciation amount for the trike, and for the Jeep if I go the actual expenses route there, I can deduct will also be impacted by % of overall use being business vs. personal, and again that % will be based on mileage tracking.

Do you note that it all keeps coming back to mileage, mileage, mileage?

Is what I'm doing sufficient?

I've had two tax accountants say yes, but if I asked a dozen more who knows on which side the total tally of yeas and nays would fall. The IRS states that:

"The law requires that you substantiate your expenses by adequate records or by sufficient evidence to support your own statement."

What's "adequate" in the eyes of an auditor? Ultimately, only that IRS auditor can say whether or not what I'm doing covers my behind, and I hope to never find out the definitive answer to the question.