Business Mileage Deduction 101 | How to Calculate Mileage for Taxes

This article has been updated to reflect 2022 rates .
Miles spent driving to meet clients, going to an position provide shop, and depositing a customer ’ second check at the bank can add up. If you use a vehicle for small business purposes, you might qualify for a business mileage deduction from the IRS .
You might be thinking that a business mileage discount is only going to save you unaffixed change. But, you could end up with a substantial tax break .
In this article, you ’ ll learn what is a commercial enterprise mileage deduction, how to calculate mileage deduction, and how to report mileage on taxes.

What is a business mileage deduction?

The occupation mileage tax write-off is a tax collapse small business owners can claim for business miles drive. mileage deduction rates apply to those who are freelance .
due to the Tax Cuts and Jobs Act of 2017, your employees can not claim the discount. however, you can continue or start providing mileage reimbursement to your employees .
mileage reimbursement
You can claim a clientele mileage deduction when you use any four-wheel vehicle for business purposes. however, your clientele can not revolve around using cars, such as a taxi service .

Mileage deduction for business purposes

Before learning how to calculate mileage for taxes, make certain you know what you can claim. thus, what types of trips are considered business miles ?
here are some common occupation purposes for vehicles :

  • Driving to meet clients or customers
  • Driving to meet with your accountant or small business lawyer
  • Driving to the bank for a business transaction
  • Driving to the store to pick up office supplies
  • Any other business-related errand

You should not claim :

  • Your commute to your business building (e.g., driving from your home to your business location, lunch, etc.)
  • Extra errands when making business-related runs (e.g., grabbing coffee when you go to the bank)

mileage deduction

How to calculate business mileage

When it comes to calculating mileage for taxes, you have two options. You can either use the standard mileage rate or the actual expense method acting .
Before choosing a occupation mileage subtraction calculation method, consider calculating your deduction with both. That way, you can determine which method gets you the larger tax subtraction .
Both methods let you deduct parking fees and tolls for qualifying business purposes. But, you must calculate those costs individually .
Regardless of which method acting you choose, keep accurate records that back up your business mileage discount claim. Consider keeping a log in your car to help you organize your records. The more support documents you have, the better .

1. How to calculate standard mileage rate

The standard mileage rate is one tax deduction method acting you can use. If you use this method acting, you can claim a standard total per mile drive .
The standard mileage rate is easier to use than the actual expense method. Rather than determining each of your actual costs, you use the IRS standard mileage tax write-off rate .
Calculating mileage for taxes using the criterion method acting is a three-step process :

  1. Determine if you can use the standard mileage rate
  2. Know the mileage deduction rate
  3. Multiply business miles driven by the rate

Determine if you can use the standard mileage rate

not all business owners can use the standard mileage method. First, you must own or lease the car you put business miles on .
If you own the cable car and want to use the standard mileage pace, you must choose this method during the beginning year you put business miles on it. You can opt for the actual expense method acting late .
If you lease the car and select the standard mileage rate, you must use this method acting during the stallion rent period .
According to the IRS, you cannot use the standard mileage rate if you do any of the follow :

  • Operate five or more cars at the same time (i.e., fleet operation)
  • Claim a depreciation deduction for the car using any method other than straight-line
  • Claim the Section 179 deduction on the car
  • Claim the special depreciation allowance on the car
  • Claim actual expenses after 1997 for a car you lease
  • Are a rural mail carrier who received a “qualified reimbursement”

Know the mileage deduction rate

Each year, the IRS sets a standard mileage discount rate. The 2022 standard mileage rate is 58.5 cents per business nautical mile drive .

Multiply business miles driven by the IRS rate

To find out your business tax tax write-off come, multiply your commercial enterprise miles driven by the IRS mileage deduction pace .
Let ’ s say you drove 15,000 miles for business in 2022. Multiply 15,000 by the mileage deduction pace of 58.5 cents ( 15,000 X $ 0.585 ). You could claim $ 8,775 for the year using the standard mileage rate method.

2. Actual expense method for mileage tax deduction

If you use the actual expense method acting, keep track of what it costs to operate your car. From there, you can record what helping of the overall expenses applies to business practice .
again, you can not use the actual expense method acting if you previously used the standard mileage rate on a leased vehicle .
For the actual expense method acting, include the follow expenses :

  • Gas
  • Oil
  • Repairs
  • Tires
  • Insurance
  • Registration fees
  • Licenses
  • Depreciation
  • Lease payments

When you record what you spend on the above expenses, besides include the date and a description of the costs .

How to calculate your actual expenses for business

To calculate actual expenses, figure out what share of your cable car you used for business purposes. You can do this by dividing your business miles drive by your entire annual miles .
adjacent, multiply your business use percentage by your sum cable car expenses .
Let ’ s say your entire car expenses for the year were $ 6,850 :

  • Lease Payments: $3,600
  • Gas: $2,000
  • Repairs: $1,000
  • Tires: $250

You drove a sum of 60,000 miles during the class. Of those 60,000 miles, 20,000 were for occupation purposes .
first, divide your business miles by your total miles :
20,000 business miles / 60,000 entire miles = 33 %
now, multiply your business mileage share by your full car expenses :
33 % X $ 6,850 = $ 2,260.50
You can claim approximately $ 2,260.50 for the commercial enterprise mileage discount using the actual expense method .

How to report mileage on taxes

so, how do you claim mileage on your taxes ?
When you file your taxes, you use form 1040. form 1040 is your U.S. Individual Income Tax Return, which lets the IRS know whether you owe more taxes or should be reimbursed .
Use Schedule C to claim business mileage expenses as a sole owner. Complete Part II, Line 9 on Schedule C .
accede either the actual expenses or the standard mileage for your car ’ s business purposes. You will besides add parking fees and tolls to the count .
partially IV, Information on Your Vehicle, asks you further questions about the business use of your car. Fill out Part IV if you use the standard mileage rate. You can besides fill Part IV out for the actual expense method if you do not claim depreciation .
If you include disparagement for the actual expense method, enter the depreciation in Part II, Line 13 .

Form 4562

If you use the actual expense method acting and claim depreciation, you need to complete Part V of Form 4562, Depreciation and Amortization. Part V asks you information about your vehicle .

Advisory

When filing taxes for your little clientele, only deduct a cable car ’ sulfur occupation practice. Do not claim 100 % business discount on a vehicle unless you use all 100 % for clientele purposes, or you could end up with an IRS audit .
Keep careful records of your vehicle expenses to claim the commercial enterprise mileage tax write-off. Patriot ’ s on-line report software lets you easily track expenses and income. And, we offer free digest. Get your free trial today !

This article has been updated from its original publication date of 12/20/2016 .
This is not intended as legal advice ; for more information, please cluck here .

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Category : Finance

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