If your business assignments involve the use of one or more vehicles, then you should do everything in your power to find out everything there is to know about auto deductions that could help you save a significant amount of money in the long run.
Obviously, if you are not familiar with this topic, you may already have many questions on your mind. For instance: Would it be recommended to utilize standard mileage rate or actual vehicle expenses as a deduction? Keep reading to discover the most accurate answer to this question.
Things You Need to Know About Standard Mileage Rate
The standard mileage rate set by the IRS for 2013, for self-employed individuals and U.S.-based employees, is 56.5 cents/mile. It is fairly easy to determine the total number of miles driven solely for business-related purposes, as long as you stay organized and note all the miles driven on a daily basis.
It may seem like a real hassle at first, but it will make things a whole lot easier for you and your accountant at tax time. Remember that all trips to the computer store, office supplies provider or to your lawyer or accountant’s office are cataloged as business matters and will contribute to your mileage deduction. The IRS will not allow you a deduction for your personal miles or the miles recorded while commuting.
Standard Mileage Rate vs. Actual Expenses
Most business owners strive to find out which is the key to unlocking a superior auto deduction: standard mileage rate or actual expenses? In this case, it all depends on your car and its condition and performance. Generally speaking, if you own and utilize a vehicle that can be operated in a cost-effective manner, it is more advantageous to use the standard mileage rate as your deduction. In other words, if you conduct numerous business trips using your cars and your vehicles trigger very few expenses, it is advisable to follow this approach.
Otherwise, if your business cars require a significant amount of fuel or costly repairs and maintenance work on a regular basis, the actual cost method would be much more beneficial for you.
Do the Math to Make an Inspired Call
If the operating costs of your vehicles are high (gas, repairs, maintenance work), then you may want to consider opting for the actual costs method to profit from bigger deductions. Put everything on paper and do some simple calculations to make a sound decision.
Estimate your annual expenses and calculate the business-use percentage (your number of miles driven for business purposes divided by your overall number of driven miles). For instance, if you have annual expenses estimated at 5,000 dollars and a business-use percentage evaluated at 90%, your auto deduction is 4,500 (90% of your total expenses). With the standard mileage rate deduction method, you just have to calculate your number of business miles and multiply it by 56.5.
Need help or have more questions? Landwehr Financial Solutions brings you comprehensive and affordable tax planning services. To schedule an appointment with our experts just give us a call at 320-203-0429.