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?
Why Use MileIQ?
MileIQ is a mileage-tracking app that provides automatic tracking and logging of your drives. That means you don’t have to start and stop the app with every drive. You just go about your day, do your job and your mileage log will automatically be created for you.
Of course, the CRA requires you to know which drives were for business and which ones were for personal. MileIQ makes classifying your drives a breeze: simply swipe a drive to the right to classify is as business or to the left to classify as personal.
MileIQ creates records that comply with what the CRA wants from its logbooks. You can print it out or easily share it with your professional bookkeeper with just a few taps.
An added advantage is that you don’t ever have to worry about losing or damaging your records, either. Your mileage log is securely stored in the cloud and you can access it whenever you or your tax pro need it.
That’s key because the CRA advises you to keep your documentation for six years from the end of the tax year.
How to Use MileIQ For Your Taxes
First, download MileIQ for iPhone or Android. Sign into your account and then just go about your business like you normally would. Once a week or so, use the app or the web dashboard to classify your drives as business or personal.
To get a deduction, the CRA requires you to track your motor vehicle expenses and your mileage. These expenses include license fees, gas and oil, insurance, interest and maintenance. Once you have your total vehicle expenses and the total number of business and personal kilometres, use this formula:
(Business kilometres ÷Total Kilometres) X Total Vehicle Expenses = Total Motor Vehicle Deduction
For example, let’s assume your total vehicle expenses were $4,500 for the year. You drove 24,000 kilometres for business and put 29,000 kilometres on your car for overall. The amount you could claim for your mileage would be: $3,724.14
(24,000 business kilometres ÷29,000 total kilometres) X $4,500 = $3,724.14
Using Apps To Be More Productive
MileIQ helps you get the largest deduction you’re entitled to. But, importantly, it also gives you peace of mind. You can stop worrying about tedious, yet important, tasks like tracking your kilometres and focus on what you care about.
That could be growing your business or that could be spending time with the people you care about. Either way, you’re freed up to think about other things, while remaining confident that you’re set for tax time.