David Knoble, CPA, PLLC

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Don't Forget To Write Your Mileage!

Many small busi­ness own­ers know that auto expenses are deductible, but many hate the record keep­ing nec­es­sary in order to get the deduc­tion.  What if your deduc­tion was twice as large?  Would the record keep­ing bother you as much?  Let’s com­pare the two options and we’ll show you how easy it is to get a siz­able deduc­tion when dri­ving for your business.

We are assum­ing first that the use of your auto is a valid busi­ness expense.  In a nut­shell, as long as you are dri­ving some­where related to your busi­ness, that is not from your office to your home and back, that use of your auto is deductible.

The two meth­ods of cal­cu­lat­ing your expense cen­ter around “actual expenses” and “stan­dard mileage”.  Actual expenses include the cost of gas, repairs, licenses, insur­ance, etc. — in other words, all items that require the use of cash.  Stan­dard mileage, on the other hand, is a for­mula con­sist­ing of miles dri­ven for busi­ness pur­poses times an IRS approved mileage rate.

The vol­ume of record keep­ing is typ­i­cally lower when track­ing actual expenses.  After all, you only get gas once per week, oil changes every other month and annual expenses for licenses and insur­ance.  What could be eas­ier?  Wrong.  Don’t for­get that you only get a per­cent­age of the actual expenses.  You still need to deter­mine what per­cent­age of your auto was dri­ven for non-business use.  Thus, if you drive 15,000 miles in a year and only 8,000 miles was for busi­ness, then you can only deduct 53% (8,000 / 15,000) of the total expenses.

Let’s esti­mate the actual costs of a typ­i­cal busi­ness use car.  Assume $40 every week for gas.  Then assume $75 every other month for oil and another $800 per year for brake pads, align­ments and other items that wear out.  Finally, let’s assume $20 for a license plate and $800 for insur­ance.  The total costs would be:  $40 x 26 weeks = $1,040, $75 x 6 months = $450, $800, $20 and $800 all equal $3,110.  Let’s round that up to $4,000 just to make things easy on the math.

So we have $4,000 in auto expenses and we have to mul­ti­ply that times 53% (our 8,000 busi­ness miles) which gives us an actual deduc­tion of $2,120.  Not bad for keep­ing up with our receipts.

Now lets’ see how the mileage stacks up.  Yes, you have to keep up with each trip and note the odome­ter read­ing and the busi­ness pur­pose of the trip.  What is the ben­e­fit, if any, for that addi­tional record keeping?

The stan­dard mileage rate for 2009 is $0.55 per mile.  Using our other exam­ple, if we only drove 3,860 miles, we would break even ver­sus our $2,120 deduc­tion for actual expenses.  This is cal­cu­lated by tak­ing 3,860 busi­ness miles x $0.55 per mile = $2,123.  In our exam­ple, we drove 8,000 miles which gives us a deduc­tion of (8,000 x $0.55 per mile) $4,400.  This is over 200% more than the actual expense deduction.

With the rise in gaso­line costs, the IRS has increased the stan­dard mileage rate and the deduc­tion can be a fairly large size.  Keep­ing a lit­tle note­book in your glove­box and writ­ing down your busi­ness trips can eas­ily save you tax dol­lars.  Keep in mind that you have to have your mileage in writ­ten form.  You even have to check a box on your tax form indi­cat­ing that you do have it written.

If you haven’t begun record­ing your busi­ness mileage, now is a good time to start!

© 2009, david.knoble
by David Kno­ble, CPA, PLLC
Serv­ing Non-Profits, Busi­nesses & Indi­vid­u­als
Rock Hill, SC

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