The mileage deduction is a significant tax break for business owners and self-employed individuals. Maximizing your mileage deductions can help you save on taxes every year.
The IRS allows you to deduct business miles for cars, trucks, and other vehicles you use in your business. However, there are a few things to remember when using this method.
Keep Track of Your Miles
You may be eligible to deduct mileage from your taxes if you’re an Uber, Lyft, DoorDash, or Instacart driver. However, if you need to keep accurate records of your trips, the IRS can easily challenge your claims.
Luckily, there are a few ways to keep track of your miles and maximize your deductions. First, you can use a logbook or an app to track your business trips throughout the year.
Then, you can use the standard mileage rate to calculate your deduction. The IRS sets a standard mileage rate each year, allowing you to deduct a set number of cents per mile driven for work purposes.
This is a great way to save money on taxes, especially if you own a car with high maintenance and operating costs. The mileage method also allows you to claim the Clean Vehicle Tax Credit on top of your deduction.
You can use a paper log or an app to track your mileage. The app will automatically categorize each trip as business or personal, and you can increase its accuracy to make it easier to keep track of your travels.
It can be easy to remember about tracking your miles, but you need to keep track of them to earn valuable tax deductions. So, start keeping up with your mileage before tax season!
Use the Standard Mileage Rate
The standard mileage rate allows self-employed people to deduct their car expenses based on how many miles they drive. It’s a simplified method that only requires a little paperwork.
The IRS sets a business mileage standard each year. This is usually the same rate as the IRS’s general mileage rate, but it may differ for purposes like charitable work or moving expenses.
Check the IRS’s website to see the current rate.
This is an excellent way for small businesses with fuel-efficient vehicles to save money on their taxes. However, it’s important to note that it doesn’t include other costs, such as maintenance and repairs, gas, insurance, or vehicle registration fees.
If you’re considering the standard mileage rate, keeping track of your mileage for the year and ensuring you drive only a few miles daily is essential. You can use a mileage log book or app to track your miles.
When filing your tax return, calculate each method using your deductible vehicle expenses (using the actual expense method or the standard mileage rate) and choose the plan that yields a larger deduction. Then, stick with that method for the rest of your car’s life.
Keep Records of Your Expenses
To maximize your mileage deduction, you must keep good expense records. This includes receipts, canceled checks, and written verification of your costs for business or personal purposes.
There are different ways to record your expenses, including using a spreadsheet or app that can scan and automatically feed the data into your accounting software. Keeping good records will also help you document your vehicle expenses in case you are audited.
If you have a lot of receipts to track, consider organizing them by month or category. This will make it easier to determine what you spent and what you need to write off.
Keeping your receipts organized will save you time when tax time rolls around. Using an app, you can take pictures of your tickets and instantly categorize them in the program.
In the past, this type of tracking was complex, but advances in technology have made it much simpler for self-employed taxpayers to do. You can even purchase plastic sleeves to put receipts in and label them by category.
The actual car expense method is more complicated than the standard mileage rate, but it can yield a larger tax deduction if you drive an expensive vehicle or pay a high amount for car repairs. If you decide to use this method, fully track your expenses and try both calculations to determine which results in the most significant tax savings.
Switch to the Actual Expenses Method
The actual expenses method requires you to keep detailed records of all your auto-related expenses. This includes fuel, oil, repairs, lease payments, tires, registration fees, licenses, and depreciation (if the vehicle is leased).
The actual expenses method can give you a higher tax deduction for business miles than the standard mileage rate. However, it can also be a hassle to track your vehicle expenses.
Therefore, many self-employed drivers choose the standard mileage rate method instead of the actual expense method for their taxes. The standard mileage rate allows you to deduct for every business mile you drive; the accurate expenses method can provide a much larger deduction.
To decide which method is best for your needs, you must determine whether your car is expensive to maintain or if you frequently have major repair expenses. Drivers who spend a lot of money on maintenance or gas save the most by using the actual expenses method.
The IRS suggests that you calculate your mileage expenses both ways and then choose the method that provides you with the larger deduction. This can be especially important for drivers with expensive cars needing extensive repairs or who don’t drive much for work.