The standard mileage rate was established by the IRS which can be described as a set rate where the taxpayer can claim an amount per mile for each mile driven in their vehicle for business purposes. The taxpayer must lease or own their vehicle and the vehicle must not be part of a fleet in order to be eligible.
The standard mileage rate must be claimed in the first year the vehicle is operated but it is optional for the taxpayer to claim this type of deduction in subsequent years. Actual expense method, on the other hand, tracks the costs associated with business use of your car such as gasoline, insurance, repairs, maintenance, etc.
You can use accounting software to keep track of your mileage for taxes where one can further automate their deductions as well as calculating both methods.
Let's get into the Standard Mileage Rate VS The Actual Expense Method.
Well, this isn’t completely settled. Since you can't make use of both deductions, you have to do the math and settle on whether it makes more sense to deduct all vehicle-related expenses or take the standard mileage deduction of $0.545 per business mile.
The IRS strives to simplify it for the average person to track travel business-use write-offs, and that is why they established the standard mileage rate, to facilitate offset fuel, lease payments, and even depreciation.
The IRS permits for each mile driven by the taxpayer for business, charitable, medical, or moving purposes to be supplemented as a tax deduction referred to as the standard mileage rate. The standard mileage rate can be taken instead of actual costs incurred when calculating deductible automobile-associated expenses. Claiming these tax deductions will help you avoid paying 1099 taxes.
Having records and receipts containing accurate mileage logs can be incredibly intricate and monotonous.Writing down every mileage covered in your vehicle can be a tedious task that very few people will be willing to undertake. Professionals such as field sales representatives and real estate agents spend a lot of hours there, sometimes even going all day. Noting down the mileage and keeping every single receipt can be an absolute chore for them (unless they use an app to track tax expenses).
When claiming a business expense deduction for a vehicle, there are two options. You can calculate the actual costs of using your vehicle for business or either opt to claim a standard mileage deduction.
Mileage deductions can be taken for charitable, medical, business, and moving purposes.
For any job that requires one to travel a lot by car, one should be deducting his or her business expenses in order to prevent them from overpaying their taxes. The expenses should include the vehicle expenses and the common operating expenses as well.
Either using the Standard Mileage method or the Actual Expense method can be applied to deduct the costs associated with the use of your vehicle.
One has to evaluate which method provides a bigger tax benefit for them because both write-offs cannot be taken at the same time. The basics of each method have been outlined in order to assist with the best option and two examples have been highlighted to demonstrate the difference among each.
If for example, you are driving for Uber or Lyft, the simplest method for calculating your deductions is to apply the standard mileage deduction. For the tax year 2015, this was 57.5 cents per mile.
You are entitled to count any miles you drive for ridesharing like Lyft or Uber 1099 taxes, as well as the miles you drive in search of passengers to pick up (even if there are no passengers in your car). On the other hand, you can’t deduct that mileage if you run personal errands in between taking customers. Only track miles for taxes that are trips for business purposes.
You need to keep a detailed mileage log for using the standard mileage rate. The date should be included in our mileage log, start time and end time, the activity concerned, and the readings from the odometer showing the beginning and end. A record of mileage driven with a passenger in the car by Uber and Lyft is summarized annually. Mileage and expense tracking tools can maximize this mileage amount.
Opting to use the Standard Mileage deduction means that you cannot deduct gas or any other expenses associated with your car except for parking fees. If you’d prefer to deduct other items, you need to use the Actual Expenses method.
When deducting actual expenses, you are only allowed to deduct the portion associated with your self-employed work. The following are some of the items that can be included as part of the actual expense method.
All your receipts must be kept and properly filed as records so that you can have all the required information conclusion on either using the standard mileage or actual expenses for a larger deduction. We recommend you use a tax receipt organizer to track and categorize your expenses so you can easily calculate your deduction.
Here are a few real-life examples to give you a better understanding of these methods:
Assume in the year 2015 you drove 10,000 miles as total miles and you use your car for Uber or Lyft for 4,500 of those miles. Here’s how one would break down the deductions using the Actual Expenses for actual vehicle expenses:
As far as car related costs are concerned, the above figures add up to $9,700 and since 50% of the time your car was used for business purposes you will have to multiply the total expenses by 50% in order to get the actual deductions which are $4,850.One the other hand, If you were to apply the standard mileage deduction method to determine your actual deduction you will have to multiply your business mileage which is 5000 miles by the standard mileage rate of 57.5 cents which will be $2,875.
It is evident in this example that the driver will clearly have a larger deduction and save more money on taxes by applying the actual expense method.
Let’s assume that in the year 2016 one drove 30,000 miles, and you use your car for Uber or Lyft for 20,000 of those miles. Here’s how the actual expenses method process would work in this illustration:
· Gas: $5,000
· Depreciation: $4,150
· Insurance: $2,000
· Repairs: $1,500
· Oil: $200
· Tires: $700
· Washes: $1000
If these deductions are added up, the total costs come out to $14,550. Since 75% of the time, the car was for business use. When you use the actual expense deduction method, one would multiply the total costs by 75% to get the actual deduction, which sums up to $10,912.5
If you use the Standard mileage rate method with these same figures, we would have to multiply the number of miles driven for business (20,000) by the standard mileage rate (57.5 cents per mile), which comes out to $11,500 for your Uber or Lyft taxes.
The driver will save the most on taxes if they use the Standard Mileage rate deduction method in this particular example.
It is evident in this example that either saving up on your taxes or adding up to your tax burden will be determined by the method you choose to apply to calculate your car-related actual expenses.
No matter what 1099 job you do, everyone multitasks nowadays. A trip to the doctor, to the workplace as well as to the store is usually carried out in a single run. This will be the first mistake you will be making if you attempt to count your already attained miles manually without using an application.
Basically, the calculation is fairly simple. Your business mileage is compiled from every trip you make to the workplace, your medical mileage is compiled from every trip you make to a doctor’s appointment hence every other trip totals up to your entire mileage but not your deductible mileage.
In order for one to keep his or her records as clean as possible as well as to reduce the amount of work needed to put into the process, there are two options at one’s disposal. Either start taking metros and buses for your casual trips, or initiate the use of a mileage tracking application. There are a number of mileage trackers, each offering an unusual set of benefits at a different cost. According to many professionals from various industries such as lawyers, real estate agents, realtors, and such, TripLog is one of the cheapest and most affordable full-featured mileage tracking applications available on the market.
The rules are very clear when an employee drives from their non-home office to carry out business. This is regarded as deductible mileage according to the IRS. On the other hand, personal commuting expenses cannot be deducted, period.
For instance, driving from your house to your work in the morning and vice versa in the evening does not require you to deduct the mileage. Expenses arising from personal commuting are also applicable for Ubers, buses, subways, etc.
Even if employees traveled straight from their personal residence to work-related engagements (a client meeting, plumbing work, etc.), this would be regarded as a commute, and thus not reimbursable.
With that said, the line gets unclear when your residence is now the site of your office. For instance, let's assume your team has all commenced working from home with no intention of reverting back to the old ways of working in the office where you are assigned to meet up a client who is located on the other side of town. Will taking a drive to meet the said client be viewed as a commute since you will be driving from your house to where you are going to work? Or would it count as business miles, since you’re using your car to go from your place of work to carry out business?
The fact that the employee’s home office is considered an official location of the company needs to be made clear and well documented. As long as this is established, then a deduction can be made by the client as a result of the drive between the home and the office.
To summarize, each deduction has its own unique pros and cons. Your best bet is to use a 1099 business expense tracker and a mileage tracker to see which of deduction will give the greater benefit to you.
When buying vehicles for your business, consider the section 179 deduction tax code. Known as the " Hummer Tax Loophole", this tax code states that the total deduction, including the Section 179 expense deduction and Bonus Depreciation is $11,160 for cars while for vans and trucks, the total deduction may be limited to $11,560.
Again, we recommend you talk to a tax professional if you have any questions about the actual vehicle expenses method or standard mileage for the larger deduction.
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?