The simplest way to deduct business vehicle expenses is tax-termed, the “Standard Mileage Method.” The other way is the “Actual Expense Method” which is in another post. Unless you like to overpay taxes, choose the biggest money saver at tax time.
The tax code lays out 4 steps for using the standard mileage method:
Example: Karl King, a hot shot real estate agent, drove his Escalade 10,000 miles showing properties, getting listings, and attending sales seminars. Karl’s vehicle deduction, using the Standard Mileage Method is figured by multiplying 10,000 miles x 54 cents= $5,400. Simple, huh? He drove another 5,000 miles attending Rolling Stones concerts. Sorry KK, the Stones miles aren’t deductible.
So, how much would this save Karl come April 15? The answer depends on KK’s income tax bracket. His tax savings might range from 15% (a little over $880) to as much as 45%, (about $2,600). This is counting KK’s federal income tax, self-employment tax and state income taxes. KK sells homes mostly to his admirers in Beverly Hills, so he’s more likely to get the higher tax savings number—as if KK needed it!
TIP for Karl: Our example assumes that Karl chose the Standard Mileage Method of deducting his Caddy’s business driving. However, this is likely not the best way for KK to go, tax-wise. That is the topic of another blog, the Actual Expense Method. Karl, don’t miss it!
For more information, see my book, Tax Savvy for Small Business (Nolo) at Amazon.com, and visit my website taxattorneydaily.com.