I still remember the first time I filed taxes for my business. In addition to having no idea what a write-off really was, I also didn't worry too much about guessing on the numbers. A few government audits later, I discovered what it really meant to do things the right way. Over the years, I have met lots of business owners that weren't too worried about fudging the numbers, and nearly all of them have run into problems. Proper accounting is important, which is why I created this website dedicated to business accounting. I know that if you learn the right way to do things and focus on integrity, your business can avoid a world of problems.
As an artist, you have many business expenses that can help during tax time. Mileage and car expenses are often one of the most confusing categories for most taxpayers. What do you need to know about deducting these expenses? Here are three key points to remember.
1. Commuting Doesn't Count
One of the most misunderstood elements of business travel is commuting expenses. If you have a studio where you do regular work on a daily basis, you generally cannot deduct the mileage between your home and the studio. Commuting is considered a cost of living and, in general, no taxpayer or business may deduct it.
An exception is made if you travel to a temporary work location, such as an on-site art job. If this is the case, you should work with an accountant to determine how much of your commute might be deductible.
2. Errands Do Count
In contrast to traveling between your home and workspace, errands do count toward business travel. As long as they are for a legitimate business purpose, you can generally deduct travel to buy supplies, meet with vendors or clients, deliver artwork, ship or mail items, and even meet with fellow artists. Keep track of all trips' mileage, dates, locations, and purposes in order to show their purpose.
3. You Choose a Method
There are two basic methods of deducting car expenses: you can use a standard mileage rate or you can deduct actual expenses. Using the standard mileage rate, you would use the standard federal rate per mile. In 2020, this rate is 27.5 cents per mile. The "actual expense" method means adding up allowable car-related expenses and claiming them as a total. These expenses include things like fuel, insurance, car repairs, registration fees (but not taxes), and updates to the vehicle.
Most taxpayers can usually choose the method that results in the most tax savings for their situation. Although many businesses and individuals find that deducting mileage is more advantageous, this should be discussed with your accountant before filing. In general, you must stick with one method for the duration of the business use of that vehicle.
Tracking mileage, knowing what types of vehicle expenses can be used or not, and creating the right documentation can be confusing. But these costs add up, and knowing how to utilize them on your tax forms will help protect your profit margin — and your ability to continue working at what you love. Start today by consulting with an experienced accountant to learn more.
To learn more about accounting for artists, contact an accountant.Share
14 January 2020