Standard Mileage Rate for Deducting Car and Truck Expenses

2017-01-03 When a motor vehicle is 1 st put in service for business, expenses can be deducted using either the standard mileage rate or actual operating costs of the motor vehicle, including depreciation on the vehicle. The standard mileage rate can be applied to cars, vans, pickup trucks, or panel trucks. However, motorcycles, scooters, or bicycles require deducting actual expenses, since the IRS considers the standard mileage rate to be too generous for these fuel-efficient vehicles — especially bicycles! Travel expenses for getting medical services or for moving or to provide charitable services are also deductible, but at a lower rate.

The standard mileage rate is based on annual studies, which are currently being done by Runzheimer International, on the variable and fixed costs of operating a motor vehicle. The studies determine the standard mileage rate for business, medical, and moving expenses. However, the $.14 rate established for travel for charitable purposes is set by statute, so it does not usually change year to year.

When considering which method to choose, you should consider the fuel efficiency of the vehicle and how it will be used in business. If you use a fuel-efficient car, the standard mileage rate may yield greater tax savings. If the choice is made to claim actual operating costs and depreciation, then the standard mileage rate cannot be used at any time for that vehicle. However, if the standard mileage rate is chosen in the 1 st year, then the taxpayer can still decide to deduct operating costs and depreciation in later years. However, MACRS depreciation and first-year expensing can only be used if the deduction of actual operating expenses is chosen in the 1 st year. If a switch is made to claim actual expenses from the standard mileage rate, then straight-line depreciation must be used for the remaining estimated useful life of the vehicle if it is not already fully depreciated.

The standard mileage rate includes coverage for the operating cost of the vehicle plus depreciation. In addition to the standard mileage rate, other variable expenses are also deductible, regardless of the method used to claim expenses for the vehicle, such as:

  • parking fees and tolls that are paid during business trips;
  • the business-use percentage of
    • interest on loans to buy the vehicle;
    • value-added taxes assessed on the vehicle purchase.

One advantage of the standard mileage rate over claiming actual expenses is that if the taxpayer uses more than 1 vehicle, then the deduction is easily calculated by simply totaling the total number of miles in each vehicle. However, the standard mileage rate cannot be claimed for fleet operations where 5 or more vehicles are used in the business or for vehicles used as a taxicab. The mileage rate can be claimed for leased vehicles, but if it is chosen, then it must be used for the entire lease period, including renewals.

The mileage rate already includes deemed depreciation, so the taxpayer must reduce the basis of the vehicle by the amount of depreciation that is accounted for by part of the mileage rate. If a switch is made later on to claim actual operating costs and depreciation, then depreciation can be claimed only if the tax basis of the vehicle is greater than zero.

schedule c mileage deduction

The first 3 1/2 months of the year are known in the US as tax season. If you are an independent creative professional, that means you get to fill out your Schedule C once again, or for the first time. But creative freelancers and tax forms are sometimes a difficult mix.

These are some common deductible questions I receive from students and coaching clients. I provide short, concise answers to them with this disclaimer: Talk with your accountant, tax preparer or tax attorney to confirm what deductions are available to you. I am not an attorney and I am not offering legal or financial advice.

You certainly can and a lot of people do. The choice of doing it yourself or paying someone else is up to you. Do you prefer to use a paid service? Would you rather do it yourself? About 80% of small business owners use the services of tax professionals. If you self-prepare your return, be sure to first read up on how to do it. Software such as Turbo Tax® walks you step-by-step through the return and schedules. If you use a professional tax preparer or service, you may deduct the cost as a business expense.

My 1099 shows the total of creative fees and expense reimbursements. What do I do about that?

Include the entire amount shown on the 1099. Deduct the expense costs on your Schedule C. They will even each other out.

I got a 1099 from a side gig and a W2 from my employer. What do I do?

Report 1099 income (non-employee compensation) on your Schedule C. Report wage income shown on your W2 on your Form 1040.

Include business mileage on your Schedule C. If you deduct mileage, be sure to differentiate between business and personal mileage, and deduct only what you have kept written records of. There are some good mileage and car expense tracking apps which send you cvs or html files of your mileage and car expenses. I advise that if you don’t keep records of something, you can’t deduct it.

If I work from home, will I get audited if I deduct for my home office deduction?

I can’t say. I don’t know if audit risk increases simply because someone claims a home office deduction. My understanding is that the deduction for the home office requires that it’s your only place of business, and that it’s used exclusively for business. You can’t rent a co-working space or office somewhere else and also deduct your home office expenses. You can’t deduct for a home office if it’s part of your kitchen or master suite.

Can I pay myself a salary and deduct it as a business expense?

You can take profits from your business as a salary or as a draw, and don’t need to do any withholding. You will pay self-employment taxes based on the net profit shown on your Schedule C.

Are my art supplies a Cost-of-Goods or Office Expense deduction?

My understanding is this: If you are selling original artwork or items you make on your Etsy shop, your supply costs are included under cost of goods sold. Office supplies then include printer ink and paper, pencils, pens, staples, thumbtacks… anything that you consume as a normal part of doing business, but don’t become part of a product you sell. It can also depend upon whether your use cash-based or accrual-based accounting. This is definitely an ask-your-accountant situation, due to its complexity.

If you intend to make a profit on your business, you should set aside a percentage of income for taxes as a regular business practice. When you pay quarterly, you avoid making a “balloon payment” of taxes in April, and also avoid any late payment penalties. Employees pay taxes throughout the year via withholding, thereby funding the government year-round. Self-employed persons are not subject to withholding, but should make estimated tax payments throughout the year.

I can, but I won’t. You should locate an income tax professional in your area that you are comfortable working with and who is familiar with the design, illustration and photography professions.

Again, I am not offering tax advice. I am not an attorney, tax preparer or CPA. If you take steps for yourself based on the questions and answers above, confirm everything with your tax professional before proceeding.