Tax Tips: Mileage Deduction

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If you run a small business, you probably use your vehicle for both business and private purposes. If that is the case, then you are entitled to claim a tax deduction for all the miles that you use your personal vehicle for business purposes.

You can compute the actual expenses of running the vehicle for the year and then calculate out of this the expenses that are related to you are business.

This method of calculation is called actual expenses deduction method.

Alternatively, you can accept to use the IRS set standard rate in a method popularly known as standard mileage rate.

With proper record keeping and some simple mathematics, you can choose the mileage deduction method that gives you the best results regarding tax deduction under the one that serves you the best.

How to Get the Information, Data and Forms You Need For Mileage Deduction

Tax forms

All the tax forms can be easily found on the official IRS website. These forms are on https://www.irs.gov/forms-pubs. You can get all the files that you need by searching them by name or number.

Alternatively, you can get your forms and publications by calling the IRS toll-free number 800-829-1040.

If you’re an employer, you will leave form 2106 to calculate business-related expenses. The form provides a basis for calculating or you are business-related expenses.

For some employed people that want to claim a tax deduction based on the year usage of the vehicle for business purposes, they will need Schedule C.

Receipts and payment statements for the year

For you to accurately calculate the actual expenses deductible for the year, you will need to add up all expenses.

This expenses will include receipts for such things as all changes, new tires, car repairs, tyre purchases and all other costs that are related to running your car for business purposes.

Do not include parking and tolls in this amount as this business costs are deductible separately.

Record of deductible mileage

Use a mileage tracking app such as GOFAR to log your deductible miles throughout the year. Remember not to include your travelling mileage from home to work and back.

To be able to make accurate calculations, you will need the total mileage covered and the business manager covered during the year.

Example 1: Supposing that on January 1st you bought a new car that you use for both personal and business purposes.

At the start of the year, the odometer reading is 0. Suppose that at the end of the year the reading is 25,000.

This 25,000, you record 10,000 miles as business use. This means that you used the car 15,000 miles for personal use and 10,000 miles for business use.

You will be allowed to make the deductions based on the 10,000 miles that you used for business purposes.

How to Use Actual Mileage and Expenses

Calculate your car’s annual depreciation

To get the annual depreciation of your car, you need to determine the percentage of vehicles that are for business-related purposes.

You will need to divide the business miles driven by the total miles driven to get the percentage of business use.

If the resultant percentage for business use is more than 50%, you are supposed to use the chart and limitation instructions as found in for form 2106 or form 4562 when applicable.

If your car used is less than 50% for business purposes, you must use the straight line method which divides the purchase price of the car by five years to get your jelly depreciation.

You must never use the acceleration method in this situation.

Example 2: Using the example above, the total mileage for the year was 25,000 miles.

For business use, the driver drove ten thousand miles and therefore, the percentage of business use is 10000 miles divide by 25,000 miles which gives you 40% or 0.4.

In this case, you must use the straight-line depreciation method when calculating your deductible expenses.

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Compute your vehicle expense per mile

You will need to add all the business related expenses along with the annual depreciation. You can meet to divide this total with the total mileage driven during the year.

The result of this will be the actual expense per mile during the year.

Example 3: if you are total outdoor expenses is $3,000, and you are total depreciation using the straight-line method is $4,000, then your total expense is $7,000.

If in a particular year you drove for 25000 miles, then you are expense per mile will be $7,000 divided by 25,000 which results in 0.28 cents per mile.

Compute your mileage deduction

To get your actual mileage tax deduction, you need to multiply you are miles driven for business by actual expense per mile.

Alternatively, you can multiply the total expenses for running the business with the standard mileage rate.

When Can You Not Use Standard Mileage Deduction?

  • If you operate a fleet as in 5 or more cars at the same time
  • If you deposited your car using any other method other than straight-line method
  • You claimed your car’s cost as a capital expense on your business that is claiming under section 179.
  • If you have in the past claimed depreciation allowance on your vehicle.
  • if you have leased a car after 1997 and have claimed actual expenses on it
  • if you have received qualified reimbursement as a rural mail carrier

A Few Takeaways

  • Sometimes an employer will reimburse you for vehicle expenses using a flat rate because you didn’t account for the business miles. If this money appears on your w2 form as an income, you are allowed to deduct it as in card expense on form 2106
  • Liver complete form 2106 if you have been reimbursed for the vehicle expenses by your employer.
  • If you are an employee, you will be limited to the amount of itemised business deductions you can make more than 2% of the adjusted gross income. If you are deduction accept 2% of your adjusted gross income, you will not be able to deduct all your expenses.
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