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One of the smartest things a business owner can do is to take advantage of the mileage allowance. If you’re self-employed, you will want to take a business deduction for the business use of your personal car.
They say nothing is free…
I think there may be one exception to this rule. That is the mileage allowance. The IRS gives you this one, free. In 2018, the allowance is 54.5 cents per mile when you use your car and drive for business.
In fact, you get a choice.
You get to compare the actual cost of driving the car plus depreciation on the car against the standard mileage rate. Whichever is better is the one you get to select.
Whatever selection you make, however, you are locked into that selection and you can’t change it.
Here is a simple example.
If you drive 20,000 miles for business you get to take a deduction of 10,450 dollars on your tax return. If you are in the 30% tax bracket this will save you a little over $3,000 in taxes. Free.
By comparison, if your total out of pocket gasoline, tires, repairs, and insurance costs plus some depreciation total $8,000 during the year, then the standard mileage rate will be a better choice.
The IRS does require one item of proof should you be examined.
You can use a mileage log, diary or some type of account book. The mileage log is a record of where you went, when you went, how many miles you drove and the purpose for the trip. Otherwise, there is no proof that you actually drove the number of miles claimed or the reason for the trip.
The lack of proof is why the IRS will disallow the deduction. So keep a mileage log.
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