Tag: mileage

Taxes, Your Car, and Your Business

Using a car in your business means tax deductible expenses. But what are the rules? How much can you deduct? What records should you keep?

Here are some answers to those questions. As usual, it’s a bit more complex than the amount of information that fits into this space. See more details and information links at the IRS website www.irs.gov/taxtopics/tc510.html.

The Rules – The entire cost of operating a car or other vehicle used only for business purposes can be deductible, subject to some limits. However, if the car is used for both business and personal purposes, only the portion of the cost used for business can be deducted. More about figuring that out under “Recordkeeping.”

How Much – Two methods can be used: the Standard Mileage Rate Method or the Actual Expense Method. Calculate the deduction both ways and choose the method that gives you a larger deduction. You can switch between methods if the car is owned. If it’s leased, the method must be selected in the first year and used for the rest of the lease period.

 

  1. The Standard Mileage Rate can be taken for owned or leased cars not part of a vehicle fleet operation (e.g., five or more vehicles). The Standard Rate is determined annually by the IRS, based on average operating costs including depreciation. The Standard Rate is $.53 per mile for business use in 2017.

 

  1. Actual Expenses can be deducted by tracking what it actually costs to operate the car, multiplied by the percentage of the business use of the car. Operating expenses include gas, maintenance, repairs, insurance, registration fees, licenses, lease payments, and depreciation.

 

Expenses for parking fees and tolls attributable to business use are deducted separately, whether you use the Standard Mileage Rate Method or Actual Expense Method.

Recordkeeping – All business expenses must be substantiated by adequate records or evidence. Payment for many car expenses is evidenced by a receipt or invoice, just like any other expense item. However, there’s only one way to substantiate the business and personal use of the car – tracking the mileage. No matter which method you use, track those miles using an app or a log book.

Sure, deducting the business use of a car on your taxes takes some effort and planning. But once you see how those deductions can add up – at $.53 a mile – you’ll see that time pay off in tax savings.

IRS Announces 2017 Standard Mileage Rates

Do you ever use your vehicle for business, medical, moving, or charity? If you answer “yes” for one or more categories, you could be eligible to deduct an amount per mile expense on your income tax return. The IRS establishes an optional annual rate per mile to calculate deductible vehicle costs.

 

Another option is to calculate the actual costs of using your vehicle and allocate the cost based on the mileage for that particular use. Using the IRS’ annual rate is much simpler!

 

So what are those standard rates?

 

For 2017, the IRS announced that optional standard mileage rates for the use of a car, van, pickup or panel truck will be:

 

  • For business miles driven – 53.5 cents per mile, based on an annual study of the fixed and variable costs of operating a vehicle.
  • For medical or moving purposes – 17 cents per mile driven, based on variable vehicle costs.
  • In service of charitable organizations – 14 cents per mile driven, set by statute.

 

Changes in the business, medical, or moving mileage rates are mainly driven by volatility in fuel costs. The business mileage rate decreased half a cent per mile and the medical and moving expense rates each dropped 2 cents per mile from 2016 to 2017. The statutory charitable rate remains unchanged.

 

Some limits apply – Taxpayers may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate option cannot be taken for more than four vehicles used simultaneously.

 

Have more questions? It’s all described on the IRS website, at http://bit.ly/2iinkHX.