Sometimes in business, your only option is to guess.
When a decision must be made right now with limited information.
Or when you’re trying out a new marketing technique.
We suppose, figure, approximate on a daily basis.
When it comes to your kilometers, however, guessing is not in your best interest.
(I will estimate about how many of my business bookkeeping clients guessed about their kilometers at tax time, though – about 90% of them.)
The problem with guessing isn’t that you’re never accurate, but that you could be grossly under-inflating or over-inflating the write off you claim on your vehicle for business use.
How can this hurt you?
Underestimate, and you’re missing out on a portion of your write off. Which means you’re paying more tax.
When you overestimate, you run the risk of arousing the suspicions of the CRA and landing yourself a date with an auditor.
Remember: by not keeping a kilometer log, you have no supporting documentation, which opens you up to penalties.
Another disadvantage to inflating your write offs: it could potentially endanger your future dream home purchase.
So, how do I properly write off my vehicle?
For sole proprietors, there’s really only one option, and that’s taking a percentage off your vehicle expenses.
The kilometer log isn’t for you. If you want to learn more about how to write off your vehicle, there’s a module in my E-School that has you covered.
For incorporated businesses, writing off kilometers is one of two ways you can claim your vehicle.
The second option is to put your vehicle in your business and claiming a percentage.
(That too is covered in my E-School module on write offs in more detail.)
A few rules of thumb:
The older the vehicle, or the more you drive for business, the more advantageous the kilometer log method is for you.
The newer the vehicle, or the less you drive for businesses, the more advantageous the percentage method is for you.
For incorporated entrepreneurs using the kilometer method, save the guessing for the Price is Right.
Do yourself a favor and track those kilometers!
Invest in an electronic tracker, or even an app, if the tried and true pen-and-paper system seems too tedious.
Have a system already? I’d love for you to share it with the other entrepreneurs in our Facebook group.
Want to know more about your vehicle write offs, write offs in general, or the essentials of business? Check out my courses here.
Stay safe on those roads and keep travelling toward greater success!