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How To Claim The Standard Mileage Deduction for Business Use of Vehicle

How To Claim The Standard Mileage Deduction for Business Use of Vehicle

Deducting standard mileage when using your car for business purposes can result in huge tax savings. Here is what the IRS 2021 mileage rate is and the IRS rules for making this deduction.

If you use a car for your business, you may be eligible for some significant tax deductions. The amount and type of deductions you can claim depend on several factors.

The IRS offers two options for deducting the cost of using a vehicle in your small business. You can deduct the actual expenses incurred while using the vehicle for your business, or, provided it meets certain criteria, and you can deduct the standard mileage rate for each mile your business car travels.


What is the standard mileage deduction?

With the standard mileage deduction, all you need to do is track the business miles traveled (with notes to indicate the business's purpose) and then multiply the total number of miles traveled by the standard mileage rate for the year. If you are claiming the standard kilometer deduction, you can also deduct the cost of taxes and parking.


What is the IRS mileage rate for 2021?

The IRS mileage rate for 2021 is 56cents per mile. Each year, the IRS adjusts the standard mileage rate based on fluctuations in a vehicle's operating costs (including fuel costs). Keep in mind that if you are preparing taxes for 2020, you will need to use the 2020 mileage rate, which is 57.5cents per mile. If you only drove for 1,500 miles per year for your business, that works out to a deduction of $862.50 at a rate of 57.5 cents per mile. If you drove for 10,000 miles per year for business, it will add up to $5,750.

Although the standard mileage rate has increased from the previous year in most years, the IRS mileage rate in 2021 is down a cent and a half from 2020. In the years when the fuel or other costs fluctuate widely, there may be an average annual fee and a different rate for the other half of the year.


How can you benefit from the standard mileage deduction?

To use the standard mileage method to calculate the business use of a vehicle, you must own or lease the vehicle for which you are making the deduction. The standard mileage rate cannot be used if you:

  • Application for depreciation or deduction under section 179 

  • Use at least five vehicles at the same time (as in fleet operations).

  • You receive qualified reimbursement as a rural mail carrier.


What are other deductible vehicle expenses?

When you use the mileage deduction, you can still deduct parking fees and expenses incurred when using your car or truck for business purposes, as well as the business percentage of auto loan interest and property taxes paid for your car. However, it is impossible to deduct actual expenses such as gasoline, oil, insurance, taxes, vehicle maintenance, and other expenses. The IRS considers these expenses to be covered by the mileage allowance.


How are records kept for the standard mileage method?

Although it is unnecessary to record the odometer reading for every trip, you must record the vehicle's parking meter reading at the start and end of the year. So every time you use your car or truck for business travel, you should record how many kilometers you have driven, where you were, and the purpose of the trip. The IRS expects you to keep a good record of the mileage you travel on business in your vehicle. You can track it the old-fashioned way, in a mileage book you keep in your car or use one of the many available smartphone apps. The important thing is that you document every time you use the vehicle for business purposes.


What is the actual expense method?

Businesses that use their vehicles' actual expense method can deduct depreciation and vehicle costs, such as rental taxes, registration taxes, insurance, garage rentals, gasoline, repairs, adjustments, and tires. Deductions are proportional to the vehicle's business use, and there are limits on the depreciation and deductibility of vehicle rental payments above certain fair market values. Keeping records and determining depreciation allowances can be quite complex using the actual expense method. In some cases, using the actual expense method can give a small business a higher deduction than the standard mileage rate, but you can consult your tax professional to be sure. 


Bottom Line

Before committing to using the mileage deduction, we recommend that you take the time to determine which method is best for you. For some people, using the actual spending method will result in greater savings. Keep in mind that after using the actual expense method for a particular vehicle, you should continue to use this method to calculate your vehicle expense deductions in future tax years.


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