Mileage Deduction
Did you know you could be deducting some business mileage expenses?
Anyone who owns a business and drives anywhere for a business related task, can be earning valuable deductions. You’ll be amazed how these add up to some nice tax savings.
This info is for business use of a personal car, not for company cars or cars owned by a business - These are handled very differently.
As a sole prop or LLC, at the end of the year, the mileage will be deducted on your schedule C.
For S-corps, your business mileage should be recorded and reimbursed to you regularly through the year; I recommend doing this when you run payroll each month.
For the actual expense method, receipts and documentation are key!
There are two types of deductions on offer.
1. Actual Expense Method
This means collecting all the data on your car and dividing the expenses between personal and business related. The proportion of use that is business vs personal is then what you can deduct.
To claim this, you need to record every journey and expense related to the car and then calculate the deduction each month or at the end of the year.
Expenses under this method include:
Gas and oil
Repairs
Tire replacement
Insurance
Fees, taxes and licenses
Depreciation or lease payments.
Make sure you keep receipts and record everything for every trip or expense if using this method.
2. The Standard Mileage Rate
The standard mileage rate allows for depreciation, fuel and all associated auto costs in one standard rate for the total business miles.
To claim the standard rate, you only need to record the mileage driven for business purposes.
The standard mileage rate is what you would use to reimburse employees for their business trips and usually works out better all round once you compare how much you drive you car for personal use.
Plus, it’s a lot less work!
To take advantage of the standard mileage rate, you need to:
Record starting mileage of the vehicle on 01/01
Record mileage and information for each business related trip through the year
Record ending mileage of the vehicle on 12/31.
Use this information to save money off your net profit figure!!
The standard business mileage rate for 2020 was 57.5 cents per mile drive.
For 2021 this is slightly reduced to 56 cents per mile.
Types of trips to include:
Any time you use your car for business! Trips to pick up supplies (even that trip to Target to pick up some stationery), trips to visit clients, trips to the post office, mileage to training or conferences - any time you have a business purpose or destination, record it!
Parking and tolls can also be written off in addition to mileage deduction so keep your receipts and pay for these through your business checking account.
Trips not included:
Personal trips or trips commuting back and forth a standard place of work.
There are a number of ways of recording your mileage. There are apps out there if you drive for business frequently [these generally require some amount of in-app purchasing to get the best out of them], or you can download my FREE mileage tracker which will do the calculations for you!!
Plus it auto calculates for you so you know exactly what your savings are.