One of my favorite tax deductions is to deduct mileage used for business. If you are driving your car for business, you can deduct 55 cents (56.5 cents for 2013) for every mile you drive. That’s pretty generous in my opinion considering that $4 per gallon gasoline for a car that gets 30 miles per gallon costs you 13 cents per mile. Obviously there are other expenses associated with driving a car including maintenance, repairs, depreciation, and insurance, but give me a break. 55 cents is awesome.
How Much Is It Worth?
Imagine you own a $2000 car. Now assume a 40% marginal tax rate. How many miles do you have to drive the car to pay for the car? Answer- 9091. Many business owners drive twice that every year. Even if you subtract 13 cents a mile for gas, it’s only 11,905 miles to pay for the car. Even a $2000 car is going to last 12,000 miles. The best part about this deduction IMHO is that they give it to you for something you have to do anyway. So it’s basically free money.
How It Works
Here’s how the deduction works. This is figure 26-B from page 184 of IRS Publication 17.
The basic rule is that you can’t deduct your commute, but you can deduct everything else. If you work at two hospitals, for instance, you can’t deduct driving in to the first one, or driving home from the second one, but you can deduct the miles between them. You have to be a business owner too- paid on a 1099 or a K-1, not a W-2. Unreimbursed employee expenses aren’t nearly as valuable, since they’re subject to the 2% floor.
My Scheme Foiled
So I had this great scheme this year. Since I have a home-based business (this blog), I had a plan to “commute” down the stairs to the home office, then drive “between my businesses” to the hospital and back to my home office, then commute back up the stairs. Unfortunately it turns out you can’t do this. If one of your sites of business is your home office, there is an additional requirement. Both jobs have to be in the same industry, which mine are not. It’s too bad. At 19 miles per round trip, 16 days a month, for 12 months works out to be 3648 miles, a deduction of $2006, or about $720 back in my pocket.
I did manage to get a few miles for each business, but nowhere near the mileage I drive between my home and the hospital.
There are other miles that you can deduct as well. Mileage driven for a charitable cause is deductible at 14 cents a mile. Mileage for medical care (receiving, not giving and subject to a 10% floor on Schedule A) and moving is deductible at 24 cents a mile. It’s not quite the business mileage deduction, but it’s better than a kick in the teeth.
You can deduct your actual expenses for business miles instead of the 55 cents. But you’re going to have to be spending an awful lot on your car to beat that 55 cent figure. Besides, who wants to keep track of all that? It’s bad enough that you have to keep a mileage log.
The Mileage Log
If you get audited, you’ll need to show the mileage log you’re supposed to be keeping. This is supposed to be kept contemporaneously (meaning you write it down when you drive the miles, not reproduce it later.) You need the date of the trip, the mileage of the trip (preferably with beginning and ending odometer readings) and the purpose of the trip.
Do you deduct business mileage? Any tips for maximizing this deduction?