A commonly forgotten deduction on small business taxes is the auto expense deduction. I think a big reason this one is left off of tax returns is that people forget to track their mileage throughout the year so they don’t even want to bother with it.
Let’s go over the calculation of the deduction first, then I’ll share some tips for keeping track of your trips through the year.
There are two methods to calculating this deduction. The mileage method is probably the most commonly used method I see my clients using. You simply add up all business miles driven for the year and multiply the total by whatever the rate is for the year. The standard mileage rates for the use of a car (also vans, pickups or panel trucks) is 53.5 cents per mile for business miles driven, down from 54 cents for 2016. Then, you can add parking fees and tolls to the total. Keep in mind, if you want to use this method in the future, you must use it in your first year of business.
The other method is multiplying your actual vehicle expenses by the business use % of your car. You will determine the business use % by dividing the business miles driven for the year by the total miles driven in the car.
Here is an example of the information you need to track for your trips.
- Purpose of Trip
- Miles Driven
If you don’t track the miles on your car’s speedometer, you can always use a program like Google Maps to figure out the miles. Don’t forget, you need to record the miles to the destination and home from the destination.
You can track in a notebook, on your calendar, or a mileage tracking app. All work, but the key is to use whatever you choose consistently.