Updated January, 2014; April, 2015; October 2017; January 2018
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See also - My "Keeping Track of Tips"
Taxes for the 2017 tax year (Jan.1 -Dec, 31, 2017 for almost everyone) are due Tuesday, April 17, 2018. The 2018 Tax Year began on January 1, 2018. The Tax Cuts and Jobs Act (a/k/a the GOP Tax Plan) was signed on December 22, 2017 and effects the 2018 Tax Year and the next nine years thereafter.
Under the TCJA there will be significant changes in deductions. It is possible that business use of a car will no longer be deductible or the standard deduction would be much better for us pizza drivers.
I will be keeping my records and seeing what works best for me.
I used to provide this each year in January for my store, and very few if any people read it. Then in April, they would be shocked when I told them I received an additional $2,000 for writing off my car. This is what I do and have done for more than 15 years. How much I get back varies, but for the last five years, it has been about $2,000 each year.
Taxes and Tips - Tips, Gratuities, etc. are income. Income is taxable. This includes cash tips not reported to your employer. I pay taxes on my tips and I claim a deduction for the vehicle that earns those tips. I did know a driver once who: a) Grossly over inflated his vehicle expenses (a 12 year old Nissan with bills like a Rolls Royce) and b) Did not claim one dime in tips. IRS hit him for three years of taxes on what they thought he earned, plus interest and penalties. IRS garnishments are a bitch.
The formula is fairly straight forward. What were your vehicle expenses? What was the percentage of your driving that was work related? That percentage minus any reimbursement is deductible. You can use actual expenses or the standard mileage rate. For 2017 the rate is 53.5 cents per mile. The current tax year's reimbursement rates can be found on this table.
IF you use the standard mileage rate, take your work miles, multiply by 0.535 and subtract your reimbursement. Pretty simple. For actual expenses, you will need to total them up. A little harder. You can calculate both numbers and then use the one that is best for you.
Tax prep software will go through these steps for you. All you need is your records. For years I did my taxes with a stack of paper forms and Excel. It was a pain to enter the formulas, but it worked. Then I bit the bullet and tried TurboTax. Got sick of TurboTax and tried H&R Block software. This year I helped a co-worker with his taxes using TaxAct Online. It was free for an efiled Federal return and $15 for a state return. Sure beats the $45 for purchased software and did a fine job.
You will need records of: How many miles you drive in the year; How many miles you drive while at work; Your vehicle expenses; When and for how much you bought your car; How far is your commute. Written records are the best. If your store uses a computerized checkout system, ask for a printout after every shift. I create a spreadsheet that tracks all of this in addition to tracking my tips and wages. You do not need to get nearly this complex. A pocket notebook works just as well, with a folder or box for receipts. One of the questions on from 2106 is "Do you have written records?" It is so much easier to create/keep them as they happen then to hunt for them when you do your taxes, and those new tires were put on seven months ago.
The miles you drive
The miles you drive are broken down into three categories. Work miles, commuting, and non work. As I have been doing this for several years, I have the odometer reading from the end of my shift on the last New Year's Eve and this New Year's Eve. A minus B equals the total miles driven. For 2011, I drove 39,400 miles and change.
Commuting miles are just that, the miles from your home to work. I know how far the trip is, times two, times the number of days a week I work, bingo, commuting miles.
Work miles are just that. Miles driven for work. If you are being reimbursed by the mile, getting this number should be easy. You can add to this miles driven from one job to another. So, I can add the miles from my day job to my pizza job to my delivery miles. I drove a little over 6,800 miles at work in 2011. I work about two days a week. Why yes that is more than 65 miles in every five or so hour shift.
So work miles divided by the sum of total miles minus commuting miles expressed as a percentage is...18%, ballpark.
Gasoline, oil changes, repairs and parts are the easy ones. You will be shocked when you see what you are spending a month in gasoline. For me it is about $250 and I am a part timer. Along with repairs comes maintenance like car washes. Insurance. How about a kickback of 20% of what you pay for car insurance? Property tax on your car, inspections and license fees. Do you do your own repairs? Keep the receipts.
You can depreciate the value of your car. It is a little more complicated, but doable. You will need the date you bought the car and the price. Depreciation has its best advantage in the first five years you own the car. Not the first five years of the car's life, your first five years with the car.
Now start on form 2106. It is pretty straigh forward. You do need to know how much in mileage reimbursment you recieved during the year. It goes on line 7. Page two has the worksheet for vehicle expenses. When you are done, enter the amount from your 2106 on your 1040 schedule A. Schedule A is for deductions. If you are an old fart like me, you already knew this. For some newer tax payers, welcome to the world of deductions. While you are here, check out some of the other things you can deduct. Did you donate clothes to a charity? Deductable. Did you give to an allowable charity? Deductable. Be careful with this one. IRS looks for cheats here. Childcare? Education expenses? Moving expenses? Fat cats write off millions, ask Mr. Romney or GE. With tax prep software and record keeping, you can get back a big chunk of change.
Should I Bother?
It takes me about an hour to fill out form 2106. If you need to scour your house and trunk for recpeipts, maybe it will take you a lilttle longer. I also keep a spreadsheet of every shift I work. It also has my year to day mileage once midnight rolls around on January 1. Everyone's tax situation is different. It is possible that even with the mileage deduction, the standard deduction is better for you. If so, take it! The online tax software will even print you a 1040a or 1040ez, if you do not need to file a full 1040.