The Standard Mileage Method — The Very Easiest Way to Deduct Miles

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:

  1. At the end of the year add up all your business driven miles. Take this number from your mileage records, using a hand-written log or a much easier smart phone App, like MileCatcher.
  2. Put the business miles number on your tax return. Sole proprietors, the majority of small business owners, report this on Schedule C or Form 4562. Don’t fret over which form, tax software like Turbotax, or a tax preparer will get it right.
  1. The business miles are multiplied by the IRS standard mileage rate. The rate changes annually under an IRS formula (irs.gov). You won’t have to look it up if using tax software or a preparer. For 2016, the rate is 54 cents per mile.

 

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.

  1. Add the costs of parking, tolls and your state’s vehicle taxes to get your total vehicle expense deduction. Our friend Karl doled out $175 for valet parking and $300 in tolls for biz, so he adds these ($475) to his $5400 standard mileage deduction and the grand total would be $5,875.

 

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.

Frederick W. Daily, J.D, LL. M (tax)
Frederick W. Daily, J.D, LL. M (tax)

Fred Daily is a tax attorney with over four decades of experience in the tax field. He has given tax programs for CPAs, Enrolled Agents and even the IRS. Fred has been quoted in the New York Times, Wall Street Journal, and has appeared on CBS, NBC, Fox, NPR news features and ABC’s Good Morning America. He is an author of books on taxes and his website, taxattorneydaily.com features a wealth of tax tips for minimizing taxes and dealing with IRS issues.