To accommodate the cost that small business owners pay for wear and tear on their vehicles, the Internal Revenue Service (IRS) has allowed a standard business mileage deduction. This deduction is essentially a way to offset the costs associated with regularly using a vehicle for business purposes.
The IRS has several options for small businesses looking to deduct their mileage. While a business can certainly choose the standard deduction, they also have the option of deducting the exact costs of using their vehicle -- such as repairs, maintenance, and registration fees. For most small business owners, the standard deduction should suffice.
The current standard deduction rates are as follows:
54 cents per mile for business miles driven, based on both fixed and variable costs
19 cents per mile driven for medical or moving purposes, based on variable costs
14 cents per mile driven in service of charitable organizations, based on statute
One caveat is that the standard deduction cannot be used for more than 4 vehicles in any given tax year. Knowing what to deduct is half the battle, but what qualifies for the deduction?
All driving for business purposes is deductible, whether it’s to meet with a client or to pick up supplies. However, there’s a difference between what a home-based small business owner can deduct versus a business owner with a brick-and-mortar storefront.
A small business owner working from home would be able to deduct any miles driven for business purposes from the moment he or she steps out of the house. A small business owner with a physical store or office as the primary place of business would have to go to the business first in order to deduct business mileage. Basically, for business owners based outside of the home, the deduction would not qualify for the miles driven to and from the office.
As with anything related to taxes, meticulous record-keeping is crucial. The IRS requires that business owners keep the mileage logs for a minimum of 3 years after filing taxes. All business miles to be deducted should be recorded in a log. This record should include the date and the odometer reading at the beginning and end of the trip. It should also note the destination and purpose of the trip. Tolls and trip-related expenses should be documented as well.
Both the standard and itemized deductions for business mileage allow small business owners to reduce their tax liability in recognition of business miles driven.
Interested in applying the business mileage deduction to your taxes this year? Give us a call today to determine if the standard deduction is right for your business.
This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided in this website is not all inclusive and such information should not be relied upon as being all inclusive.