As a small business owner, you're constantly looking for ways to make more money. Focusing on your revenue is important, but you also need to think about your take-home pay.
One of the best ways to do this is to maximize your deductions. I'm sure you're doing a great job of this with most of your business expenses but there's one deduction you may not pay attention to: your mileage.
The CRA knows there's a cost associated with using your personal vehicle for business purposes. That's why it allows you to claim your motor vehicle expenses to reduce your taxable income.
It may not seem like a lot at first but just think about how much you drive for your business. Every trip to meet a client or to pick up supplies can lead to more money in your pocket at tax time.
How To Claim Motor Vehicle Expenses
The CRA offers a simple formula for claiming your mileage. You must first keep track of your car expenses like gas, insurance, interest and more. Then, you must track your business kilometres and your overall kilometres. Divide your business kilometres by your overall kilometres, multiply that figure by your vehicle expenses to arrive at the amount you can claim.
(Business kilometres Total kilometres) X Total Vehicle Expenses = $Amount You Can Deduct.
For example, let's say your vehicle costs were $6,000 for the year. You drove 25,000 kilometres for business, while putting 31,000 kilometres on your car overall. The amount you could claim would be $4,838.71.
(25,000 business kilometres 31,000 kilometres) X $6,000 = $4,838.71
Keep in mind, this is $4,838.71 you can claim in addition to your other business expenses. Claiming your mileage as part of your motor vehicle expenses is a great way to lower your taxable income.
What Records Do You Need To Keep?
Of course, the CRA isn't just going to take your word for how many kilometres you drove. You're going to need documentation. Not only should you have receipts for all your vehicle expenses, you'll need a mileage log for your kilometres.
Your mileage log must include:
- Dates of your drives
- The destination
- The business purpose
- Number of kilometres per trip.
You must also include the beginning and end odometer readings of your vehicle for the fiscal period.
How Should I Track My Mileage?
Most small business owners I know are already drowning in paperwork and the thought of tracking every single drive is just too much. I completely understand this.
But there are mileage-tracking apps like MileIQ which can automatically track your mileage for you. You just drive, do your job and your mileage log will be automatically created for you. These are also proven to satisfy the CRA record-keeping requirements, and can easily be updated and shared with your professional bookkeeper.
Whatever method you use to track kilometres, just remember that every kilometre is potentially worth money. Why are you leaving dollars on the street?
Guest Author: Marin Perez
Marin Perez is a marketing manager at MileIQ, a service that enables individuals and businesses to efficiently track and report their mileage.