What are the different types of auto expenses and how do I Know which one to take?
The IRS gives you a choice to take actual or their standard mileage when it comes to the auto expense deduction on your tax returns. Booked financial always will go the extra mile and calculate the choice that will be more beneficial for you – but there are steps you can take to make sure you aren’t leaving money on the table when you drive your car for your business.
Standard Mileage
The IRS currently classifies this mileage rate as 56 cents per mile for 2021. If you take standard mileage you must keep track of all mileage in a written log with some kind of description of business purpose. If you select standard mileage in the first year, you are able to switch to actual expenses later on if it becomes more beneficial.
Standard Mileage Recordkeeping – best practices
There are certain things you should keep into account when taking mileage. The IRS requires you maintain a log of mileage and what business activity you were discussing or completing there – many kinds of software can provide this service – MileIQ, QB self employed to name a few, or you can even keep a very detailed calendar with locations and descriptions to verify your business trips.
Actual Expenses
The IRS lets you classify actual expenses on your car with certain requirements – here is how you make sure money is not left on the table. Keep in mind that if you select actual expenses in the first year your car is used for business you cannot switch back to standard mileage.
Actual Expenses Recordkeeping – best practices
Make sure all expenses you use for your car are run through your business account. This includes gas, tire rotations, oil changes, anything at all related to expenses on the use of your car. Best way to do this is to pay for all auto expenses using a business credit or debit card.
Which method is better for me?
Of course, the conclusion that we see is that the best choice will depend on what you expect to happen with your vehicle within a specific year as well as how you expect the vehicle to perform.
- If you drive a large SUV or luxury car – with a low amount of miles in your specific profession – it generally will mean it is more optimal for you to take actual expenses – just make sure all expenses are run through your business account
- Whereas on the other hand, If you drive a more reliable car with a high number of miles but don’t need to spend a lot for repairs and maintenance – standard mileage might be the better choice
No matter what you think is the best option, Booked financial will take care of it when it comes to tax time – and make sure you’re not leaving money on the table.
For more information – get booked for a call with your Booked Financial Rep
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This tax information is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Booked Financial LLC recommends that you consult with a qualified tax advisor, CPA, financial planner, or investment manager. Depending on the nature of your business there are different variables that would make one option better than the other. Please understand these before choosing to deduct expenses under actual or standard mileage on your tax returns.