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

The Standard Mileage Deduction…

Taxes… Love them or hate them, they are necessary. The wise entrepreneur uses everything in their power to discover any, and all deductions to legally reduce their taxes as much as possible.

Personally, I moved here to Puerto Rico partially as an advantage on my taxes. As a citizen of this commonwealth, we do not have to pay Federal taxes.

But, I do understand a lot about taxes and how to save as much money as possible on them.

No, I am not a Certified Public Accountant or bookkeeper, but my father was an accountant before retirement and I learned a lot of wise material from him.

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

As a business owner, you need to find every legal tax deduction you can to help you take some of the burden off you when it is time to do your taxes.

We have often spoke about tax deductions in other articles. In today’s post, we are going to look at a tax deduction that you should be taking if you are using your vehicle even slightly for business matters. We will examine the standard mileage deduction for small business owners, and how it works.

Decisions, Decisions, Decisions

In taking a tax deduction on your vehicle and the amount you drive for business, you have a choice to make.

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 do all this, you must keep all receipts, and you add all your miles and your business miles to figure out the percentage of business miles you used the car for. You would then add all the above expenses and multiply it by the percentage you figured out.

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:

  1. The Laptop Lifestyle: Top 22 Ways To Make It Happen
  2. The Top 37 Advantages and Disadvantages of Working From Home
  3. Top 21 Tax Deductions for Network Marketers
  4. The Home Office Deduction: 15 Things You Should Know

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 the 2016 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.

So 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 53.5 cents = $4975.50

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.

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.

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.

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 have to pay at year’s end.

What are your thoughts? Do you have any added advice? You can post your comments and questions below.

Will you do me a favor? Please share this post with all your team members and friends. It could help them save money on taxes too. Thank you.

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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