Recent upsets in world’s economy and housing industry have obviated one thing: diligent saving is a must-have virtue. It’s interesting to see more and more small businesses and self-employed individuals hopping onto the saving bandwagon. Wouldn’t be nice if there were ingenious ways to save even more? Newsflash: tax deduction can be some sort of Holy Grail if you are looking to churn out a little cash from your taxes. For self-employed and small businesses, this news is a slice of heaven. Heck, who would not want a little relief on tax?
With that, there is one kind of tax deduction that is turning heads in the small business sector: mileage deduction.
What is IRS Mileage Deduction?
Mileage deduction in itself isn’t new. In fact, it is one of the most claimed types of a tax deduction. Also referred to as car deduction, mileage tax deduction allows you to deduct on your car or truck expenses. Expenses that are tax deductible include but not limited to:
- Office to office drive: cost incurred as and when driving from your office to another site or office is deductible.
- Airport trips: travel to and from the airport for business ventures are also included.
- Drives to and from customer visits
- For job-seekers, you can deduct miles logged while looking for employment.
- Even driving for odd jobs like babysitting or lawn mowing also qualify for deductions
As it is, there are two main kinds of IRS mileage deductions: the IRS Standard Mileage Rate and actual expense deduction. Unless you are not entitled to mileage deduction, you should settle for the one that best improves your bottom line.
Standard Mileage Rate (SMR)
SMR is a mileage tax deduction rate that is established by the IRS. This is the most preferred mileage deduction because it’s easy and convenient to claim. All you have to do is log your business driving miles and use the rate to figure out your deductions. As of May 2016, the rate stands at 54, 14, and 19 cents per mile for driving for business, charity, and medical or moving respectively. For example, if you log 500 miles driving to work, your tax deductible is $270 (0.54*500).
Actual Expense Rate
This form of mileage tax deduction wins over SMR by a big margin. In it, you are required to track all your business driving expenses. Besides, miles logged while driving for businesses purposes; you can deduct other overhead as well. These include repairs, maintenance, oil, gas, car-washes, parking, and even business meals.
IRS Mileage Deduction Rules
Rule #1: Commuting expenses aren’t deductible
Rule #2: It only covers vehicles that aren’t part of a fleet
Rule #3: Business drives expenses should be reasonable, cost-effective, and ordinary