Too many drivers are throwing money out the window.
Not by what they're doing, but what they aren't doing.
They aren't tracking their miles.
What that means is they're paying tax on more than they should. Every mile you neglect to track costs you at least 9 cents in extra taxes, maybe as much as 15 to 17 cents. Nine cents isn't much, but multiply that by the thousands of miles we drive.
Doing the math.
Say you earned a thousand dollars and you drove a thousand miles last week.
Say you forgot to track those miles.
Your self employment tax on that $1,000 is $153. If you've out-earned your deductions, your income taxes are going to be about $100, possibly $120, with a slight chance of being more. For this discussion we'll stick with $100.
If you had tracked those miles, your taxable income now is only $425 (based on 2020's 57.5 cents per mile deduction). Now your self employment tax is $65.02 and income tax is $42.50. Total a total of $107.52. Tracking those miles saved you $145.48, just under 15 cents per mile.
You have to track your miles.
What the IRS Requires.
Even if you decide to claim the actual expenses related to your car, you need to have a record of your business miles. That's because you can only claim the business percent of the use of your vehicle on those actual expenses.
In other words, if 90% of your miles were for business, you can claim 90% of the actual expenses.
Which means you still have to track your miles.
When you fill out your taxes for your delivery business, you'll be asked if you have evidence to support your deductions for your vehicle. Then you'll be asked if it is written.
In other words, you're not allowed to guess. You aren't allowed to estimate. Without a written record, your vehicle deductions can be completely disallowed.
Four things required in a written record
The IRS requires that your written record includes four things:
The date of the trip.
A description of where you went
A description of the business purpose of the trip
How many miles you drove.
In other words, for each day you deliver, you need a record.
Can that be hand written?
Yes. In fact a significant number of mileage records are still the old school mileage logs, often recorded by pen and paper.
I keep a digital version of that myself. I have a daily log that includes my odometer reading when I started, the odometer reading when I ended, and other details for the day.
But isn't it easy to make up the record? Can't someone fake it?
They can, but it's not as easy as you might think. In fact because written records usually involve writing down odometer readings, those are often considered more trustworthy than GPS records. Those readings can be cross referenced to maintenance records to show that miles aren't just being made up along the way.
Can you use GPS tracking?
Yes. As long as the GPS program will allow you to print out a log (to give you a written record) and as long as it provides the information required by the IRS.
Is GPS tracking more reliable? Yes and no. On the one hand, you have an incredibly accurate record of exactly where you went.
The challenge with GPS is a lot of times people neglect to delineate which trips were for personal reasons and which were personal. You don't know if you were in your car, or on a bike or mass transit. Sometimes the business purpose of the trip isn't recorded.
A lot of people like GPS tracking, especially the kinds that record automatically, because you can set it and forget it. It's the forget it part that gets them in trouble.
What's the best way to go?
It really depends on you.
If you're disciplined and are good at remembering to record things to start and finish, I believe the written log is better. For some, using the GPS is just easier. You can click to start and stop on your phone. Or you can get a program that automatically records.
I keep a Google Sheets spreadsheet. It's easy that way, I can just pull it up on my phone or I can do it on my desktop computer.
Who still uses a desktop these days???
Okay, I keep a few different Google Sheets… that's the nerd in me. There's a sheet where I record all my deliveries as I go. And then I have one where I record my starting miles, my ending miles, and I list all my earnings for each app and how many hours I worked. Listing the different apps and what I earn provides documentation of my business purpose.
And then I have a GPS backup of sorts. I used to use a specific program until I realized that Google Maps has a timeline feature. I can pretty much tell you where I was on any given day for the past two or three years, as long as I had my phone with me.
That's kinda creepy when you think about it. But there are some great things about it as well.
If I needed documentation that I really was out driving 150 miles that one day, I can look at Google maps time line and pull up a map that shows exactly where I went. And if I forgot to track miles, I can usually get a pretty good re-creation of my
It's a little creepy when you think about it, isn't it? Big brother knows all about where I've been. But anyway, it does give me a back up in case I ever need it – so I have both the written log AND GPS record.
What are the GPS Apps that work well?
Here are a few you can look up.
Stride is a free app. It does not have the automatic tracking, but does a reasonable job.
There are a couple that are fairly popular including MileIQ and Everlance.
If you use Quickbooks Self Employed, they have a mileage tracking app that seems to stack up with the others pretty well.
What miles can you track?
There's a lot of confusion out there on this one.
Can you only track when you have food in the car? Or just when you've accepted a delivery?
Here's what it boils down to: As long as you are actively seeking or performing deliveries, you can track the miles. Returning from a long delivery is part of the delivery. Going to pick up the food is part of the delivery. The primary rule I've heard from a number of places is that as long as you are available with intent to accept offers, the miles you drive count.
What that means is you can more or less start when you're available to take deliveries until the point you decide you're done taking offers.
If you do deliver in a zone outside of where you live, your trip TO that zone is technically considered a commute. I see this happen a lot on Doordash where the zones are smaller and someone chooses to schedule in a different zone.
Here's how I do it: As soon as I go available, I record my starting miles (or turn on the GPS). Once I decide I'm done, that's when I record my final miles.
There are a lot of arguments out there for being able to start and stop from your home. I'm not going to argue one way or the other. I'm not sure the IRS is going to quibble over those miles very much if it came down to it, especially if you're tracking and documenting things well. It's just my personal choice to not push the envelope.
The main thing here: Track your miles.
Keep track of the driving you're doing. It makes a huge difference when you use your car as much as we tend to.
As I mentioned in session 21, you can claim those miles no matter what type of deductions you are taking on your personal taxes. This doesn't fall under itemized verses standard, you claim your miles in a completely differnt part of your taxes.
The important thing though is, makes sure you're keeping a good record.
No questions today
We're taking a break on the daily questions today.
Instead, I'm sending you something attached to today's email you can fiddle with.
I mentioned my Google Sheets spreadsheet. I made a version of it in Excel (mostly because Excel is more universally recognized).
The first page is something where I just entered some sample data so you could see what it looks like.
There's a lot more than just miles. It also provides a daily tracking for your earnings. It will give you a calculation of how much money you made, your profit per hour, and even give a suggestion for how much to save for taxes.
You can change information. Several days we went over how to calculate actual cost for your car. I put 30¢ per mile in but you can change it if your cost is different. I figured that for taxes a good number to save is 25% of your profits. Some go lower, some go higher. You can change the percentage.
So instead of messing with questions from today, I'll turn you loose to tinker a bit with the spreadsheet. If you have problems with it, shoot me an email, I'll send a copy directly.