"Going Somewhere?"
by Greg Mermel
Published in the "Money and Taxes" column in PerformInk on February 29, 2008
The accepted wisdom is that people are driving less because of high gasoline
prices. My clients seem to be driving more, at least judging
by the questions I get. Some are driving on out-of-town
trips where they once would have flown; this is driven
(sorry about the pun) by rising airfares, sinking on-time
records and the increasingly dismal experience of airport
security. In town, I find that I am driving more while
both of my regular CTA Brown Line stations are closed for
construction. I also suspect that last year’s endless transit funding crisis, featuring constant threats of a CTA shutdown
or evisceration, led many to just drift back to their cars.
The questions that I am being asked suggest that some folks have created really
clever schemes to figure their tax-deductible automobile
expense. These are not accurate or acceptable schemes,
but they are undeniably clever.
So let’s go back to basics.
Miles and Miles to Go
You could potentially deduct automobile mileage several places on an income
tax return. Each starts from the same question: how many
miles did you drive for business, or medical treatment,
or charity, or to move to another city? That question is
more complex than it seems, and the latter part of this
column will be about the answer. But once you have the
answer, all you do is multiply those miles by the appropriate
cost per mile.
What per-mile rate is appropriate varies, depending on the purpose and, sometimes,
your particular circumstances.
The rates for medical, charitable and intercity moving uses are generally designed
to cover your incremental costs, that is, the direct out-of-pocket
expense of driving those extra miles: 20¢ a mile for medical, 14¢ for charitable and 20¢ for moving. Those rates just about covers the gas (if that) at current Chicago
prices.
In contrast, the rate for business miles is intended to cover the entire cost
of owning your car – not just fuel, but also oil, insurance, repairs, license plates and the cost
of the car itself (through lease payments or depreciation
expense). You can calculate all of this out and use your
actual cost per mile. Or you can take the easy path and
use a rate the IRS publishes annually, which was 48.5¢ for 2007 and is 50.5¢ for 2008.
The IRS per-mile rate for business use is a fair representation for the average
American driving his average car an average number of miles
per year, while paying the national average prices for
gas, repairs and insurance. If you drive well below that
average number of miles, the per-mile cost of insurance
and ownership increases dramatically. Add in premium gas
and pricey in-the-city insurance, and your actual cost
can be double the IRS rate.
Going Who Knows Where
Answering the “how many miles” question requires dividing it into two parts: out-of-town, and in-town.
Out-of-town is much simpler, once you’ve determined what is out-of-town and what is not. This may not be obvious.
Consider Milwaukee. It’s another city, in another state, with its own airport. Intuitively, that is
out-of-town. From my office, it is about a ninety to one
hundred minute drive. But it takes just as long to drive
to some of Chicago’s south suburbs and those are intuitively in-town.
The answer involves not intuition, but sleep. If you stay over – or you don’t, but a reasonable person would – you went out of town. Otherwise, not. Milwaukee can be either.
Figuring Out-of-Town Miles
Reset your trip odometer as you leave your house, and don’t reset it till you are back. That’s it. If you are out of town on business, all your driving is deductible. The
only exception is if you have a “sub-trip”: for example, work might take you to Buffalo, and you wisely escape on the weekend
to Toronto.
Figuring In-Town Miles
The general notion is that the ordinary cost of commuting to and from work is
personal and not deductible. To accommodate those who occasionally
leave their regular workplace, a rule provides that from
your home to your first business stop of the day is personal,
and that driving from your last business stop of the day
back home is personal; everything in between, however,
is business. Incidental personal stops such as lunch or
the dry cleaners are ignored.
“Business stop” is a very broad term. It covers not just work or auditions, but also trips to
the book store, to my office, to buy opening night gifts
or to pick up sides. In short, any time you are spending
tax-deductible money (or would, if they had what you want),
and any time you are making money or doing something that
might lead to your making money – these are business stops.
If you regularly work at home, your first or last business stop on any given
day may well be at home. It rather depends on what you
did before or after you got in the car. If you were at
your desk, calling your agent or working on lines, that
is a business stop. If you go out with the cast after a
show, come home stinking drunk and pass out, that is not.
Please, don’t get greedy and claim you were working at home every single day before you went
out and after you returned. You know it is not true, and
the IRS does, too.
A Final Nag
If a tree falls in a forest and nobody hears it, I do not know if it still makes
a sound. But I do know that if you drive someplace on business
and do not log that information somehow, those business
miles do not exist for tax purposes.
Free Offer
Every year during the income tax season, I offer free copies of my
“Checklist of Potential Deductions...” for those in the arts. Just call my
office, or send
an email to checklist@gregmermel.com.
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