Skip to content
Apply Today!

Mileage Tax Hacks!

Picture of Spark Support
MILEAGE TAX HACK! TITLE CARD (2)

 

When being self employed, we often need a vehicle to transport our company's merchandise and ourselves daily. Thus, we should always consider acquiring a car to facilitate our lives. Still, we must also consider that the IRS standard mileage rates can vary and are constantly updated yearly due to inflation, gas prices, etc.

You want to read this blog if...

  1. You own a company vehicle and want to deduct it on your taxes
  2. If you are self employed and curious on how auto deductions work

  3. You want to know what is the best tax strategy for you


 

Understanding How Mileage Rates Are Determined

When you want to claim money back on your taxes for driving for business purpose, it’s essential to know how the IRS figures out how much you can deduct for each mile you drive. This is called the standard mileage rate, which can change yearly. The IRS looks at gas prices and car repair costs to decide what this rate should be.

For example, in 2024, the IRS set the mileage rate for business use at $0.67 for every mile you drive for business purpose. This rate includes all the costs like gas, repairs, insurance, and wear and tear on your car.

MILEAGE TAX TIP # 1: At the start of each year, check what the IRS has set as the mileage rate. Even small changes can help you save money on your taxes. If you can deduct your mileage, keep track of all the miles you drive for work to claim the total amount!

 

Choosing Between the Standard Mileage Rate and Actual Expenses

You have two options when it comes to deducting auto expenses 1) using the standard mileage rate or 2) your actual car expenses. Most people choose the standard mileage rate because it’s easier to track or they drive a lot for business, but sometimes, adding up all your car costs can be better.

If you pick the actual expense method, you can deduct things like:  
- Gas and fuel  
- Car repairs and maintenance  
- Vehicle registration and taxes
- Lease Payments, if applicable
- Interest on car loans  

The standard mileage rate is more straightforward because you only need to keep track of the miles you drive for business. It doesn’t require as much paperwork, but calculating actual expenses might give you a more significant tax break if you drive a lot or have a fancy car.

If you use a vehicle more than 50% business use, you can also take advantage of the magical word "depreciation," if you choose the actual method. Simply put, depreciation is how much value your car loses over time.

It''s important to note in either mileage or actual, you need to keep track of your miles. 

Mileage Tax Tip 2: If you’re not sure which option is better for you, keep careful records of both your miles and your car costs. When it’s time to do your taxes, you can compare the two and see which one gives you more money back. It might also be a good idea to ask a tax professional for help in figuring it all out.

 

Track Your Mileage Accurately

It would be best to keep careful notes about your trips to get money back for the miles you drive for work. This means writing down how many miles you drove, why you went there, where you started and ended, and what day it was.

To make things easier, you can use apps like MileIQ, QuickBooks, or TripLog. These apps can automatically track your miles and help you create reports for your taxes. Keeping good records will help you when it’s time to do your taxes and keep you safe from penalties if the IRS comes knocking!

Mileage Tax Tip # 3: Use a mileage tracking app that automatically keeps track of your miles and makes it easy to report. This way, you won’t have to remember to write things down and won’t miss out on getting your money back.

 

Don't Forget the Additional Deduction for Vehicle Use

If you use your car only for work, there are some extra money-saving tips you can use regardless of the mileage or actual method used. Here are a few:

1. Parking Fees: If you pay for parking when you’re working, you can get that money back on your taxes.
   
2. Tolls: You can deduct those costs if you must pay tolls, such as bridge or highway fees, while driving for work.

3. Car Loan Interest: If you have a car loan and are self-employed you can take off the interest you pay.

Mileage Tax Tip 4 Keep track of how much you spend on parking and tolls. These small costs can add up over the year, and many people forget about them!

 

What If You Use Your Car for Both Personal and Business Purposes?

If you use your car for personal and business use, you can only count the miles you drive for business when figuring out how much money you can deduct from your taxes. To do this, you must know what percentage of your driving was for business.

For example, if you drive 20,000 miles a year and 10,000 miles are for business purposes, you can deduct 50% of your car expenses (whether using the standard mileage rate or counting the actual costs). 

Assuming mileage method, that would be a $6,700 tax deduction (10,000 business use miles X $0.67 IRS mileage rate).

BLOG IMAGES (5)-1

Making the Most of Your Mileage Deduction

Mileage deductions can significantly reduce your tax bill but require attention to detail.

By understanding how the IRS determines mileage rates, knowing your options for deductions, and keeping meticulous records, you can maximize the amount you claim each year.

Key takeaways:

  • Track your business mileage consistently using an app or logbook.
  • Stay updated on the IRS’s annual mileage rates. 
  • Consider whether the standard mileage rate or actual expenses will provide a more significant deduction for you.
  • Don’t forget about additional vehicle-related deductions like parking and tolls.
  • Accurately track the business use percentage if you use your car for personal and business purposes.

Our Final Thoughts

By implementing these mileage tax hacks, you'll be well on your way to getting the most out of your tax deductions and potentially saving hundreds or even thousands of dollars annually. Also, it's always good practice to be guided by Tax Professionals during the process of documentation and IRS filings. 

Interested in working with us? Feel free to apply below 👇

 

 

Disclaimer

The information provided is for general purposes and does not constitute tax, legal, or financial advice. Tax situations vary, and we recommend consulting with a qualified tax professional or attorney before taking any action. Spark Tax Services LLC is not responsible for any errors or the outcomes from using this information, and tax laws may change.

 

References:  


 

Thanks For Reading!
, ,