If you're an independent contractor, you know the value of every mile. You can save a load of money on your taxes if you properly track your miles. Understanding tax laws may sound confusing but that's why we're here to help. We've created a free mileage tracker template that will make it easy for you to keep track of your business mileage.
In this article, we'll walk you through how to properly track miles for taxes and use our free template. Keep reading if you need help with calculating your actual expenses instead—our app can help get things rolling.
Note: The majority of freelancers save more money on their tax bill by recording their actual expenses instead of mileage tracking and claiming the Standard Mileage deduction. Only one method can be claimed for the business use of your vehicle. If you want an automatic way to track your vehicle expenses and other tax deductions, try Bonsai Tax. Our app scans your bank/credit card receipts to discover tax write-offs and maximize your write-offs. In fact, users typically save $5,600 on their tax bill. Try a 14-day free trial here.
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It is very important to track your mileage consistently. Every trip, every time. Many folks record their miles monthly or weekly but that is not recommended because the IRS would not accept those if there is an audit.
You don't necessarily need to send in the exact mileage log or documentation for mileage you claim along with your 1099 every time you file. However, if you get audited without receipts or documentation to justify your tax deductions, you'll be in trouble. After all, the IRS will want to see proof of your business mileage. You know what they say, it's better to be safe than sorry.
For a given trip, you'll need the date of the trip, starting miles, miles driven, the destination, and the reason it qualifies as a business expense in the mileage log sheet template. Keeping accurate records of your business travel is important to verify your claim. In 2021, the mileage rates are 56 cents per mile. So, the IRS will allow you to deduct 56 cents per business mile and the spreadsheet will help you calculate the value of your business travel.
To fill out the mileage log form, simply enter the purpose for your trip as well as collect odometer readings at the start and end of the trip. The IRS does not require you to include odometer readings for each trip. You just need to include the mileage and reason for each trip. The reason sent to the IRS must have an accompanying name, business, or purpose in the mileage log. Next, let's discuss when a trip actually accounts as business miles.
Remember to keep records in the mileage log of your odometer at the beginning of the year or January 1st of every year. You'll need this figure to calculate the total mileage for your tax return.
Note: If you want to skip out on the hassle of keeping a mileage log and instead keep records of your expenses, try Bonsai Tax. Contractors usually save much more money going this route. As a matter of fact, the average user saves $5,600 from their tax bill by using our app. We'll scan your bank/credit card receipts to discover vehicle and other tax write-offs. We do all the hard work for you. See for yourself. Try a 14-day free trial here.
Before you use our free mileage log, you'll need to know exactly what counts as "business miles". Commuting miles from home to work do NOT count as business miles. It's only when you drive for a business-related task would the IRS considers the mileage to be deductible. However, if you need to drive from one work location to another, those miles would count as an expense.
A general rule of thumb is if you drove miles by your choice, it is likely a personal expense and you won't be able to deduct the mileage. Remember to print our mileage log template and leave it in your car. The IRS recommends you keep mileage records for at least three years. Three years is when the statute of limitations is up for an audit.
Now, let's get into when a business trip would qualify for a mileage deduction.
The miles traveled to and from the airport for business trips count as business miles.
If you drive for a business-related errand, the mile traveled for the business trip is deductible. Examples of this would include going to the bank, post office, or a store for supplies. Although these business trips may seem small, these miles can add up.
If you have a client meeting or trip to see a customer, those miles would count as business expenses.
If you have a home office, that is considered her "work place", then all business-related mileage is deductible. The trip could qualify as long as you meet the principal-place-of-business qualification.
You can easily find the mileage log form record in the app. Simply download the report in excel to get your mileage records and reimbursement at the end of the year.
Remember, if you select the Standard Mileage method, you cannot deduct car operating expenses like maintenance and repairs, gas, insurance, oil, and vehicle registration fees. All of these items are factored into the mileage rate set by the IRS.
As we mentioned before, the mileage reimbursement you get from claiming the Standard Mileage Rate for small business owners tends to equal the lower deduction.
Let me show you an example of if you keep track of your actual expenses versus miles.
If your mileage log shows you drove 4,000 total mileage for business-related purposes during the year, you would only be able to deduct $2,160 in 2021. Since the business mileage log form tracks your business mileage, you can subtract the number from your total mileage to get a good idea of your personal miles.
The only other expenses you can deduct that aren't included when you calculate the Standard Mileage rates are:
There are many mileage tracking apps you can use instead of a mileage log sheet to record your tax miles. All you have to do is categorize records for personal or business when you drive, and the app will track your mileage deductions/reimbursement for you.
Now, let's break down expenses like tires, gas, maintenance, depreciation, and insurance and multiply that total by the time driving for business ratio for the alternative method.
We'll use national averages as the alternative to claiming a Standard Mileage deduction...
Now, if we add up all of these expenses, it would total $7,525. Let's say you used your vehicle for business 50% of the time. So your total deduction would be $3767. You see, tracking expenses instead of total miles were driven for business on a spreadsheet may be worthwhile for your tax return.
Note: If you don't want to waste your time mileage tracking and instead use track your other expense to claim the business use of your vehicle for taxes, Bonsai Tax could help. Claim your 14-day free trial here. Again, users save on average of $5,600.
If you want to save time and money on your taxes this year, then it is important that you know how much of a deduction can be claimed for business mileage. Business miles are the distance traveled by a business owner in the course of their work. They include travel for business-related tasks you may take care of during the day (such as running errands or picking up supplies).
The IRS has specific guidelines about what counts as “business” miles, so make sure to double-check before getting started! We hope our mileage log template helps you stay on top of your mileage tracking. Don't forget to print out the spreadsheet and store it in your vehicle. Track your mileage for every trip to maintain an accurate record.
The team at Bonsai always recommends you consult with a tax professional to receive accurate mileage tax advice. IRS tax laws are always changing and it is your responsibility to properly file your taxes. If you have any questions about your specific circumstances or what trips count as deductions, talk with a CPA.
A verbal contract (formally called an oral contract) refers to an agreement between two parties that's made —you guessed it— verbally.
Formal contracts, like those between an employee and an employer, are typically written down. However, some professional transactions take place based on verbally agreed terms.
Freelancers are a good example of this. Often, freelancers will take on projects having agreed on the terms and payment via the phone, or an email. Unfortunately, sometimes clients don't pull through on their agreements, and hardworking freelancers can find themselves out of pocket and wondering whether a legal battle is worth all the hassle.
The main differences between written and oral contracts are that the former is signed and documented, whereas the latter is solely attributed to verbal communication.
Verbal contracts are a bit of a gray area for most people unfamiliar with contract law —which is most of us, right?— due to the fact that there's no physical evidence to support the claims made by the implemented parties.
For any contract (written or verbal) to be binding, there are four major elements which need to be in place. The crucial elements of a contract are as follows:
Therefore, an oral agreement has legal validity if all of these elements are present. However, verbal contracts can be difficult to enforce in a court of law. In the next section, we take a look at how oral agreements hold up in court.
Most business professionals are wary of entering into contracts orally because they can difficult to enforce in the face of the law.
If an oral contract is brought in front of a court of law, there is increased risk of one party (or both!) lying about the initial terms of the agreement. This is problematic for the court, as there's no unbiased way to conclude the case; often, this will result in the case being disregarded. Moreover, it can be difficult to outline contract defects if it's not in writing.
That being said, there are plenty of situations where enforceable contracts do not need to be written or spoken, they're simply implied. For instance, when you buy milk from a store, you give something in exchange for something else and enter into an implied contract, in this case - money is exchanged for goods.
There are some types of contracts which must be in writing.
The Statute of Frauds is a legal statute which states that certain kinds of contracts must be executed in writing and signed by the parties involved. The Statute of Frauds has been adopted in almost all U.S states, and requires a written contract for the following purposes:
Typically, a court of law won't enforce an oral agreement in any of these circumstances under the statute. Instead, a written document is required to make the contract enforceable.
Contract law is generally doesn't favor contracts agreed upon verbally. A verbal agreement is difficult to prove, and can be used by those intent on committing fraud. For that reason, it's always best to put any agreements in writing and ensure all parties have fully understood and consented to signing.
Verbal agreements can be proven with actions in the absence of physical documentation. Any oral promise to provide the sale of goods or perform a service that you agreed to counts as a valid contract. So, when facing a court of law, what evidence can you provide to enforce a verbal agreement?
Unfortunately, without solid proof, it may be difficult to convince a court of the legality of an oral contract. Without witnesses to testify to the oral agreement taking place or other forms of evidence, oral contracts won't stand up in court. Instead, it becomes a matter of "he-said-she-said" - which legal professionals definitely don't have time for!
If you were to enter into a verbal contract, it's recommended to follow up with an email or a letter confirming the offer, the terms of the agreement , and payment conditions. The more you can document the elements of a contract, the better your chances of legally enforcing a oral contract.
Another option is to make a recording of the conversation where the agreement is verbalized. This can be used to support your claims in the absence of a written agreement. However, it's always best to gain the permission of the other involved parties before hitting record.
Fundamentally, most verbal agreements are legally valid as long as they meet all the requirements for a contract. However, if you were to go to court over one party not fulfilling the terms of the contract, proving that the interaction took place can be extremely taxing.
So, ultimately, the question is: written or verbal agreements?
Any good lawyer, contract law firm, or legal professional would advise you to make sure you formalize any professional agreement with a written agreement. Written contracts provide a secure testament to the conditions that were agreed and signed by the two parties involved. If it comes to it, a physical contract is much easier to eviden in legal circumstances.
Freelancers, in particular, should be aware of the extra security that digital contracts may provide. Many people choose to stick to executing contracts verbally because they're not sure how to write a contract, or they think writing out the contract terms is too complicated or requires expensive legal advice. However, this is no longer the case.
Today, we have a world of resources available at our fingertips. The internet is a treasure trove of invaluable information, platforms, and software that simplifies our lives. Creating, signing, and sending contracts has never been easier. What's more, you don't have to rely on a hiring a lawyer to explain all that legal jargon anymore.
There are plenty of tools available online for freelancers to use for guidance when drafting digital contracts. Tools like Bonsai provide a range of customizable, vetted contract templates for all kinds of freelance professionals. No matter what industry you're operating in, Bonsai has a professional template to offer.
A written contract makes the agreement much easier to prove the terms of the agreement in case something were to go awry. The two parties involved can rest assured that they're legal rights are protected, and the terms of the contract are sufficiently documented. Plus, it provides both parties with peace of mind to focus on the tasks at hand.
Bonsai's product suite for freelancers allows users to make contracts from scratch, or using professional templates, and sign them using an online signature maker.
With Bonsai, you can streamline and automate all of the boring back-office tasks that come with being a freelancer. From creating proposals that clients can't say no to, to sealing the deal with a professional contract - Bonsai will revolutionize the way you do business as a freelancer.
Why not secure your business today and sign up for a free trial?