Maximizing Your Business Vehicle Deduction with the IRS Mileage Rates
As a small business owner, taking advantage of every tax deduction available to you is important. One such deduction is the cost of using a vehicle for business purposes. The IRS provides mileage rates as a method of calculating this expense, but is it really the best choice for your business? At P3 Accounting, we have a new tool that can help you determine the answer.
The IRS Mileage Rates: A Quick Overview
The IRS mileage rates are a set of rates that businesses can use to calculate the deductible cost of using a vehicle for business purposes. This method is convenient because it eliminates the need to keep track of actual expenses like gas, maintenance, and depreciation. Instead, you simply multiply the number of business miles driven by the IRS rate for the year.
Is the IRS Mileage Rate Method Right for Your Business?
Unfortunately, the mileage rate method is not always the most advantageous for businesses. This is because the rates are based on the average cost of operating a vehicle, but your individual expenses may be significantly different. You may not use the IRS business standard mileage rate on your vehicle if you
have five or more vehicles on the road at the same time;
lease a vehicle and don’t use the standard rate for the full term of the lease;
claimed Section 179 expensing on the vehicle;
claimed any depreciation on the vehicle, other than straight-line depreciation over the vehicle’s estimated useful life; or
use the vehicle as an employee of the United States Postal Service to deliver mail on a rural route.
Corporation. Your corporation may not use the mileage rate to deduct its corporate-owned vehicles. But the corporation can use the mileage rate to reimburse employees for the business use of their personal vehicles.
Partnership. As a general rule, partners may not deduct the expenses of a partnership on their personal income tax returns, even if the expenses were incurred by the partners in furtherance of the partnership business. Under this rule, the partnership may not use the IRS mileage rate method on partnership vehicles.
But if, under the partnership agreement, partners are required to pay certain partnership expenses out of their own funds, then the partners are entitled to Section 162 deductions for the amount of such expenses. And in these cases, the partners are claiming the deductions as self-employed individuals and may use the standard mileage rate.
To determine if the IRS mileage rates are a good deal for your taxes, you need to consider the entire life of your vehicle, including any gain or loss on sale or disposition. This is where our new tool at P3 Accounting comes in.
If the tool finds that the mileage rates are to your benefit, then great! But if it turns out that the mileage rates are not optimal for your business, we have an IRS procedure at P3 Accounting that allows us to switch you to the actual expense method.
Introducing the Actual Expense Method Tool
Our tool at P3 Accounting takes a comprehensive approach to analyzing the IRS mileage rates versus the actual expense method. This cradle-to-grave examination helps us get to the bottom-line dollar benefit or detriment that the IRS mileage rate method gives us.
If the tool finds that the mileage rates are to your benefit, then great! But if it turns out that the mileage rates are not optimal for your business, we have an IRS procedure at P3 Accounting that allows us to switch you to the actual expense method. This will result in a higher after-tax dollar amount for you.
Maximizing Your Tax Savings with the Actual Expense Method
The actual expense method allows you to deduct all of the actual costs of operating your vehicle for business purposes. This includes expenses like gas, maintenance, repairs, insurance, and depreciation. The actual expense method requires more record-keeping, but it can result in a larger tax deduction if your expenses are significantly higher than the IRS mileage rates.
Examine Your Mileage-Rate Choice Today
In conclusion, it's essential to carefully consider your options when it comes to calculating the deductible cost of using a vehicle for business purposes. The IRS mileage rates may be convenient, but they may not be the most practical choice for your business.
We invite you to contact P3 Accounting to examine your mileage-rate choice. Our actual expense method tool can help you determine if the IRS mileage rates are the best fit for your business, and if not, we can help you switch to the actual expense method to maximize your after-tax dollar amount. Let P3 Accounting work with you to ensure you are getting the most out of your business vehicle deduction.