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  • IRS Standard Mileage Deduction or Actual Expenses? Which One is Better for You?

    July 11, 2019 | Blog | bryanshearer
  • One of the most common trouble spots that business owners incur is how to treat vehicles for business purpose. Most business owners ask about deducting mileage and then also the payments on the vehicle and are shocked to learn you can only do one or the other. Also, once you choose one method on that vehicle, you are locked into that method with some exceptions. Knowing the proper way to deduct your vehicle expenses will not only save you money but also from a potential audit.

    Standard Mileage Deduction

    It is called the standard mileage deduction because it takes the least amount of work to take this expense. Think of it as a catch-all without having to prove all the expenses. Essentially, you need to keep track of your business miles for the year in a written log or app, and you are good to go. This can be used for purchased or leased cars as well. You can also deduct parking fees/tolls, interest you pay on a loan and any registration and taxes that are owed on the car. You cannot take depreciation on the car, gas, vehicle repairs, lease payments or anything else related to the car.

    Actual Expenses Deduction

    This deduction is just as it sounds, you can claim all the actual expenses you incur. You will still need to log your miles so that you can determine the business and personal use of the vehicle and you will also need to keep all your receipts. You can now deduct gas, repairs and all other expenses to your car. If you are financing it, you may take the depreciation of the vehicle and if leasing, you may now take the lease payments.

    You can still deduct parking, interest and taxes on the car, but with this deduction, you can deduct everything else that is vehicle-related. Even things like garage rent, insurance, etc can be taken now.

    Which One is Better?

    This is an impossible question to answer without knowing a person’s situation. In general, if a car is being used for light duty, such as just for visiting clients, then the standard mileage is generally the better way to go. If you are operating a large vehicle with poor gas mileage and high maintenance costs, then you will likely choose the actual expenses. Again, it all depends on your situation.

    To figure out what is best for your business and to learn other ways to help maximize your tax write-offs, please schedule a consultation with us.