Dear Tax Talk,
My wife is a caregiver to the elderly. She has to drive to and from clients’ homes. We had been keeping track of the mileage to hopefully get something back when we did our taxes. We did not get anything because the person helping us with our taxes said that we didn’t meet the minimum requirement to be able to claim them. I didn’t think there had to be a requirement — mileage is mileage — and you should be able to claim it no matter how much it is. Please help.— Brad
Mileage is mileage, but where you can deduct it depends on whether your wife was treated as an employee and received a Form W-2 or was an independent contractor and received a Form 1099-MISC.
If an individual uses his or her car to meet or visit with customers or clients, this is usually considered business mileage. The individual can claim actual expenses or a standard mileage allowance. In 2008, the standard allowance was $0.505 for the first six months of the year and $0.585 for the remainder of the year.
An employee can claim standard or actual automobile expenses by completing Form 2106. Form 2106 requires detail as to the miles driven as well as certain questions about adequate documentation to establish the deduction. The total of all employee expenses claimed on Form 2106 is carried to Schedule A, Line 21, miscellaneous itemized deductions.
Apart from being an itemized deduction, all miscellaneous itemized deductions must be reduced by 2 percent of your adjusted gross income. If you do not otherwise itemize your deductions, for example, to claim taxes and mortgage interest, mileage alone may not be sufficient to itemize versus claiming the standard deduction. In 2008, a married couple’s standard deduction in lieu of itemizing deductions is $10,900. This may be the reason your accountant said it did not meet the minimum.
If your wife works as an independent contractor then she should complete Schedule C. Unlike an employee, there is no offset or reduction to mileage expenses incurred by a self-employed taxpayer.
For example, if your wife earned $20,000 as a caregiver on a 1099 and incurred $5,000 in automobile mileage, only the net $15,000 would be taxable. Instead, if she earned $20,000 as an employee and incurred the same $5,000 in expense, she would be stuck paying taxes on the full $20,000. In both cases, she would be allowed the $10,900 standard deduction. As you can see, being an employee is inherently unfair.
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.