Driving deductions are a valuable way to significantly lower your taxable income. This is especially true if you’re self-employed. Yet, there are guidelines to follow unless you want to be staring down the barrel of an IRS audit.
Driving Deductions: What Can You Actually Write Off?
If you use a personal car or other vehicle for business purposes, you may be able to write off a lot.
There are two ways to write off your business milage: the standard mileage rate and the actual expense method. The Ultimate Guide to Mileage Deduction walks you through each method in detail and will help you decide which method could bring in a larger deduction (which winds up being more money in your pocket).
The most common method of writing off vehicle expenses is using the standard mileage rate. With this, you take a mileage deduction for a specified amount for every business mile you drive. The IRS set the standard mileage rate at 54 cents per mile in 2016 and you’d simply multiple your business miles by that amount to arrive at your deduction.
For example, if you drive 10,000 miles for business during the year, you’ll be entitled to a $5,400 tax deduction. Even if you don’t drive that much, the mileage deduction can quickly add up. If you drive 50 miles per week for business throughout the year, you could claim a $1,404 deduction on your 2016 tax return.
You can deduct the actual cost of using your car for business, plus depreciation. This requires much more record keeping, but it can result in a larger deduction. The actual expense method requires keeping track of all your car costs during the year including gas, repairs, insurance, tires and more.
What about a company car? What about business drives with a personal car and a monthly gas allowance? What if you drive a spouse for their business? Driving deductions can get trickier as your situation gets more complex. Not to worry, the Ultimate Guide to Mileage Deduction will answer all your questions.
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MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.