Business owners often do a lot of traveling while conducting their business. The gas mileage on a car or other vehicle can be considerable over a year. Much of the cost of the operation of your car can be recovered at tax time if good records are being kept each time you travel. Here are some tips on how to reduce taxable income using the standard mileage deduction for your car.
The Mileage Rate
Expenses for operating your vehicle can be subtracted from your taxes in two ways. One way is to deduct the actual expenses you spent on using your vehicle. The other method is to use what the IRS calls the standard mileage deduction. This is a rather generous amount unless you spend a lot of money on your vehicle’s upkeep.
Every year the IRS changes the rate given for business miles. In 2020, businesses are allowed to subtract each business mile at $0.575. This enables your business to subtract more than half of the costs spent on driving your vehicles. If you have driven 5,000 miles for your business, that comes to a tax deduction of $2,875.
The IRS Requirements
To claim your mileage, the IRS expects you to keep good records, in case you are ever audited. Your records will need to include a date, the purpose of the trip, and the actual mileage. All miles can be claimed when you use one to four vehicles at the same time. Costs can also be included for parking and tolls.
A mileage log, such as a notebook, can be used to record all your trips, time, expenses, and mileage – with beginning and ending odometer readings. You can also use an app on your smartphone for this purpose.
Expenses That Cannot Be Claimed
When looking for ways to reduce taxable income, remember that the mileage that is used to travel from your home to your normal place of business cannot be included. When a vehicle is used for personal and business use, you cannot include any miles for personal use. When a trip involves both, you can subtract the portion used for business. Tax forms for deducting mileage expenses on a Schedule C require that you supply the beginning and ending mileage for the year and the number of miles used for personal purposes.
When using the standard mileage deduction, you cannot subtract costs for several things because it is considered to be covered in the deduction. You cannot subtract the costs of:
- And more
Although these costs cannot be deducted in the standard mileage deduction, you can subtract them if you use the actual expenses method. If you are not sure which method might be better for you, you will need to calculate both methods to see which one gives you a larger tax break. If you have expensive repairs performed on the vehicle, such as replacing a transmission or engine, you will probably want to use the actual expenses method. The best method that you use may change from one year to the next.
Other Mileage Deductions
The IRS has also determined that vehicles used for other purposes may also claim a standard mileage deduction – but it involves a different rate. Trips made for medical purposes that are considered essential for medical care can be deducted – if not covered in other ways, at a mileage rate of $0.17 per mile. Deductions are part of your standard deductions, which need to be above 7.5 percent of your AGI to be deducted.