The Standard Mileage Deduction for Small Business Owners: How it Works

The Standard Mileage Deduction. That’s what I want to discuss in today’s post.

Your vehicle is a big expense. When you factor in your loan payments, insurance, gas, and upkeep, it can cost as much, if not more, than some mortgages. Fortunately for you, if you own your own business, even a home-based business, you may be able to write off a portion of those vehicle expenses, if you use your vehicle for business purposes and you keep good records.

In the paragraphs that follow, I will cover the ins and outs of the standard mileage deduction. But as a disclaimer, please do not take everything I write here as being 100% completely accurate. Be wise and seek counsel from a Certified Public Accountant before doing your taxes so you know you are completely in compliance (I would feel extremely terrible if you were in trouble because of my article).

Tax Deductions

Taxes are inevitable. As a small business owner, you must find every legal tax deduction you can to help you reduce your tax burden LEGALLY. Entrepreneurs have many deductions at their disposal, but the vehicle expense can be a great write off when done properly. Best of all, your vehicle does not have to be exclusively used for your business. You can use it for both personal and business usage. To maximize your vehicle deductions, you simply need to educate yourself, get organized, and keep good records.

You may qualify to deduct some of your vehicle-related expenses if you use your car for business purposes. The IRS defines a car as any four-wheeled vehicle—including a truck or van—intended for use on public streets, roads, and highways. It must not exceed 6,000 pounds in unloaded gross weight. Exceptions include ambulances, hearses, vehicles used to transport people or property for money or hire, or trucks or vans that are qualified non-personal use vehicles. ~ the balance.com

Decisions, Decisions, Decisions

In taking a tax deduction on your vehicle and the amount of miles you drive for business, you have two options. You can:

Take an actual expense deduction
Take the standard mileage deduction

The key with both of these options is you must log your total mileage and the mileage used for business matters.

What the Deduction Consists of

In the actual expense deduction, you can deduct:

Gas and oil changes
Maintenance and repairs
Parking fees and tolls
Registration fees and taxes
The interest on a vehicle loan
Insurance
Depreciation
Etc…

To claim these write offs, you must keep all receipts, and you must determine the business use (percentage) of your total miles for the year. You would then add all the above listed expenses and multiply it by the percentage you determined. I am going to give you a simple example to put things in perspective:

Let’s say Jim has a 2002 car so there is no depreciation and no loan payments. Gas, oil changes and other similar items came to $4,900 for the year. Fees and taxes came to $800 and insurance $600. So the total expenses were $6,300. Jim drove a total of 14,000 miles and he drove 9,300 miles on business.

9300 divided by 14000 = 66.4%

$6,300 X 66.4% = $4,183.20

That would be the amount Jim could deduct using actual expenses. Would he be better off using the standard mileage deduction? You’ll find out in a moment.

Other posts you should read:

How the Standard Mileage Deduction Works

The IRS made this simple. They have set a certain amount for each mile driven, but it is important that you know that amount because if you use a previous year’s amount, you will be wrong.

In 2016, the rate was 54 cents per mile; in 2017, that rate has been lowered to 53.5 cents per mile. In 2021, the standard mileage rate is 56 cents per mile.

Let’s look at Jim’s mileage and determine which deduction he would be better off taking. Jim can still only deduct the business mileage which is 9,300 miles.

So 9,300 x 56 cents = $5,208

As you can see, Jim would be better off using the standard mileage deduction.

It does seem the IRS has set the rates high enough so the standard mileage deduction is the most common form used. But, sometimes the “actual expense” is better. I suggest you calculate both deductions and then take the one that is best for you.

Keeping Records

Here is where many business owners slip up. You must keep records of every business trip.

The date
The destination
The purpose of the business trip

Keep in mind that if on the way back home on your business trip, you decide to stop at a store to pick up some groceries for home, the business trip ends at that point and it becomes personal.

The best thing to do is purchase a mileage log and keep it in your vehicle. Whenever you enter your car to drive somewhere, update your mileage log.

Keeping Up with the IRS Changes

Normally, the rates the IRS sets are the same throughout the year, but there is the possibility they may change that rate because of gas price fluctuations. You should keep abreast of these changes. Even better, if you use an accountant, they should be well aware of any IRS changes.

Make it Easier

As a small business owner, you have so much on your plate. Keeping logs of your mileage can add a lot of pressure, but it is worth it.

If you can deduct $3,000, $4,000 or more off your tax bill, you will surely be glad you kept those logs. But there is an application that can make the whole process much easier. It is called Mile IQ and by having the app on your phone, it will add the miles and you just tell the app if it is business or pleasure. I highly recommend that you get Mile IQ… You can do so here.

Vehicle Ownership

Deductions can vary depending who, or how the vehicle is owned. If you are the owner of the vehicle, you can follow the above system.

If the vehicle is under a C or an S Corporation, you will want to consult your accountant on how the deduction should be claimed. If you are under an LLC, it works the same as an S or C Corporation; so talk with your accountant.

Tips from the Experts

Here are what a few experts have to say about the standard mileage deduction.

Commuting miles to and from work are not deductible. However, if you stop off at a supplier first, then the mileage from the supplier to your workplace is a deductible expense. ~ Alloy Silverstein

And…

As these examples show, the method you use to calculate the business use of your car can have a big impact on your total business expenses, your net income, and your tax burden. Keep complete records so you can calculate your deduction using both methods, and then choose the one that saves the most money for you. ~ TurboTax

And…

Taxpayers can use the standard mileage rate but must opt to use it in the first year the car is available for business use. Then, in later years, they can choose either the standard mileage rate or actual expenses. Leased vehicles must use the standard mileage rate method for the entire lease period (including renewals) if the standard mileage rate is chosen. ~ IRS website

Final Thoughts

As you can plainly see, this is one tax deduction that you should not neglect taking. But, it does require maintaining accurate records.

Personally, I totally believe in the application I provided above, but I would also keep a log book so you have double proof. Or, if the app has a glitch, you still have your written records.

Keep all receipts no matter how large or small. This deduction can make a huge difference in the amount of taxes you must pay at year’s end.

What are your thoughts about the standard mileage deduction? Do you have any added advice? You can post your comments and questions below.

Disclaimer: I am not the IRS or a CPA. Please consult with your local CPA for additional questions. This post is for educational purposes only.

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