To Mileage or Not To Mileage…
60-plus cents for every business mile driven, deducted from your net profit – it’s as if you got paid for driving. Yes, a good deal. The IRS allows business mileage deductions to help offset the wear and tear for business use of your car. Most of the time, this is a great tax strategy for deducting vehicle expenses.
But are there circumstances when it’s better to deduct direct auto expenses rather than mileage?
Definitely.
When is deducting auto expenses a better strategy? Consider these examples:
1-Old van that requires a lot of maintenance to keep it running – well over what a mileage deduction would offset?
Possibly. It depends on the business vs. personal use percentage of your driving. If you’re only using the vehicle for business maybe 10% of the time, that would mean only 10% of the car maintenance, fuel, insurance, etc. would be deductible. But if it’s say, 75%, that could mean a higher deduction using the auto expenses method.
2-Leased vehicle used exclusively for business?
Yes. The monthly lease cost would be deductible, along with fuel and other expenses. With 100% or majority business use of a leased vehicle, auto expenses is often a great strategy. If the value of the vehicle is over $50,000, there will be a small offset to the deductibility, but should still be a good deal.
3-Newer vehicle used for business occasionally, or even every day?
Probably not. This is when the business mileage method pays off. The mileage deduction for business use of your vehicle is meant to help offset the wear on your car, to help out as the vehicle ages or is replaced. In the early years of a vehicle’s life, with less maintenance needed, mileage is usually a better choice.
Whichever strategy you choose, whether mileage or auto expenses, that will be the required method for the duration of the vehicle’s business use. If you have more than one vehicle used for your business, you can mix it up – one deducting mileage and another deducting expenses – you just can’t switch the expensing method on a particular vehicle.
Commuting to your job doesn’t count for mileage, but those trips across town to meet a client or research a competitor’s products can add up. It’s definitely worth the effort to track your miles.
There are several techniques for recording mileage, from simply jotting down the vehicle’s odometer readings in a notepad to tracking through an app connected to your phone. Whatever works best for you – as long as you’re noting where you traveled and keeping good records.
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