You can deduct business miles from your taxes if you own or rent a car. But you must know how to properly claim the deduction before using it.
There are two ways to accomplish this. Use the standard mileage rate if possible, or record your actual spending. The one that best suits you will depend on the circumstances.
Keep Track of Your Miles
When you submit your taxes, you can deduct business miles if you drive for a firm, like a cab or delivery service. However, to claim this deduction, you must maintain accurate records of your miles.
Typically, business mileage refers to the miles you drive while on work-related trips in your car. This includes going to clients for lunch, meetings, conferences, and errands related to your job. You also need to record odometer readings at the beginning and end of each trip to determine how many miles you have driven.
A mile-tracking app is a simple and convenient way to track your mileage.
The mileage tracking apps are a great option because they do the work for you and create a mileage log that you can use at an IRS audit. You can also use other records to verify your mileage, such as appointment books and calendars.
You can deduct business mileage for vehicle expenses in the standard mileage rate method or the actual expense method. The accurate expense method allows you to write off a percentage of the total car expenses, but it’s more complicated. At the same time, the standard mileage rate method is more convenient and easy to use.
Depreciation
Business mileage is a crucial deduction that helps small business owners save money on their taxes. This is because the IRS allows businesses to deduct the number of a car’s expenses used for business purposes as part of their gross business income.
When calculating your business mileage, keep track of the miles you drive for work-related reasons in writing. Record each trip’s date, location, and business purpose using a calendar, smartphone app, or another method.
Once you have your total business mileage, you can choose which deduction method will give you the most significant tax savings. There are two options: the standard mileage rate or the actual expense method, which involves tracking the costs of your vehicle’s use for business purposes.
The actual expense method requires a detailed log of the car’s expenses, such as gas, oil, tires, repairs, insurance, tolls, parking, garage fees, registration fees, and lease payments. The deduction can be up to 100% of your car’s expenses and includes the business-use percentage of your vehicle’s depreciation.
In contrast, the standard mileage rate allows you to multiply the number of business miles you drive by a predetermined rate. It includes driving costs, fuel, repairs/maintenance, and depreciation but excludes interest on an auto loan, registration, property tax fees, and parking and tolls.
Fuel
A fuel is any material with a chemical bond capable of releasing energy, typically through combustion. These compounds can be found in nature, such as in wood and coal, or synthetic, like gasoline.
The most common types of fossil fuels are coal and oil. They were created from the remains of animals and plants that grew on Earth, typically millions of years ago.
Another fuel type is liquid, which can be either natural or synthetic. Liquid fuels are generally more efficient than their solid counterparts but can be more expensive.
The main advantage of liquid fuel is that it can be stored and transported easily. This is particularly important in transportation, where vehicles travel miles between ports and other locations.
If you use your car for business purposes, there are two ways to deduct its cost: using a mileage log and claiming actual expenses. The latter requires more record-keeping but may offer a higher per-mile write-off.
Whether with the per-mile mileage log or actual expenses, you must keep detailed records of your car’s usage. This can be done with a small notebook or an app on your phone, such as Everlance.
Maintenance
If you drive your car for business purposes, tracking and documenting your mileage is essential. You can do this in a notebook, a logbook, or an app that tracks miles.
If your business use of a car is consistent – you drive the same panel truck to drop off orders daily – or if you regularly visit clients’ offices to do maintenance, your mileage can be deducted as an actual cost. Either way, you must record your trips and why you drove each time.
The IRS doesn’t recognize “commuting” or recreational driving as business mileage unless you have equipment or tools in the trunk. That’s why keeping records of all your business miles is essential, especially if you travel more than ten days per year or frequently visit clients’ offices and have advertising for your business on the vehicle.
If you need help determining which method is best for your situation, it’s best to stick with one for the entire tax year. This will allow you to calculate your deduction both ways, and you’ll want to choose the method that yields the most significant conclusion.