By Maire Loughran. Arts/Crafts Business Expert
I think it’s almost impossible for any small businesses not to be able to take a tax deduction from business income for deductible business-related mileage. Even if you order all supplies and sell all your arts or crafts online, you’ll still have some business mileage running to the post office, the office supply store or the bank.
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There are two different ways to figure your tax deduction from business income for this mileage – the standard mileage rate and the actual cost method. Both methods require keeping a vehicle log.
Standard Mileage Rate (SMR) - Accounting for your business vehicle use tax deduction is very simple using this method. Your first step is to purchase a notebook or mileage log from an office supply store and keep it in any car that is used for the arts / crafts small business.
Calculating the Tax Deductible Mileage
Every time you get into your car for business purposes note in the log your car's beginning odometer reading and briefly annotate the purpose of the trip - for example - see XYZ client, go to bank, buy office supplies - whatever. When you return to your office or home office at the end of your business trip note the ending odometer reading in your log.
Next, calculate the total miles you drove and you are done. So, if your beginning odometer reading was 10,521 miles and your ending odometer reading was 10,530 miles your total business miles for this trip is 9 miles.
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To make it easier to quickly total all tax-deductible business mileage, write this figure in a column set off to the right-hand side of your log.
There is no need to track any sort of non-business use of a car you own personally. No regulatory agency like the Internal Revenue Service or your state Department of Revenue cares about your personal mileage Therefore, it will not seem odd or unusual to see gaps in the ending odometer reading for one business trip and the beginning odometer reading for the next business trip.
Figuring the Business Tax Deduction for Mileage
Total your tax-deductible business mileage using a spreadsheet program like Excel. Wondering how often you should do this? Based on the volume of business mileage you put on the car, do it weekly, monthly, quarter or yearly - whatever seems to be the most appropriate. The total business mileage is multiple by the standard mileage rate set by the IRS for the year and viola – you’ve got your business mileage tax deduction.
For example, the total of all my business mileage for the year is 5000 miles. The standard mileage rate is .42 cents per mile (you can look up the correct standard mileage rate for the current year on the IRS website). My tax deduction is 5000 times .42 or $2,100.
Explaining Other Vehicle Deductible Expenses
You use the SMR to approximate most expenses incurred with the use of a vehicle. For example, gas, vehicle insurance, oil changes and other repairs and depreciation. To make this abundantly clear - if you use the standard mileage rate you DO NOT also take a deduction for gas, insurance, repairs and maintenance or depreciation.
However, there are some deductible expenses that are appropriately taken in addition to the SMR. These include business tolls, parking, and the business percentage of interest paid on the car loan.
Calculating the Deductible Business Percentage
To calculate the business percentage for your car write down your odometer reading at January 1 and deduct that number from your odometer reading at December 31. This equals total miles placed on the car for the entire year. Next, figure the percentage of business miles you placed on the car.
For example, January 1 the odometer reading was 10,000 and at December 31, the odometer reading was 20,000 - you placed 10,000 miles on your car during the year. You total all your business miles using the method I outlined above and that figure was 5,000. Your business percentage is 5,000/10,000 or 50%.
You can take a business deduction for 50% of the interest paid on your car loan. Add your business tolls, parking and car loan interest to your standard mileage rate tax deduction to figure your total car business expense for the year.