Taxpayers have the option of deducting business travel expenses based on the actual expenses or with a standard mileage deduction. The IRS revises this deduction to keep pace with rising gas prices, inflation, and other factors that drive up the costs of owning and operating a motor vehicle.
The big news is that the IRS increased the standard mileage rates for 2013 to 56.5 cents per mile, up from 55.5 cents per mile in 2012, a year the department also increased the mileage rate deduction.
The IRS also increased the mileage rate deduction for moving and medical purposes, also up by 1 cent, to 24 cents per mile. The rate for charitable services stays the same, at 14 cents per mile.
Taking a deduction for business travel can get complicated, but for most small business owners, it’s worth the hassle. Travel deductions can add up to thousands of dollars in tax savings each year. But there are some things you should know so you can work with your accountant to make the best decisions when it comes to deducting transportation expenses.
Standard Mileage Rates vs. Actual Cost Tax Deductions:
When you deduct your transportation expenses using the standard mileage deduction, you cannot deduct vehicle service expenses, gas, taxes, insurance, vehicle registration fees or the cost of the vehicle itself, either in whole or depreciated. You also cannot deduct the cost of payments on a leased car.
You can deduct parking fees and tolls (but not tickets or fines), interest on a car loan, and property taxes paid when you purchased the car, which are sometimes included with the car registration.
No Turning Back:
If you don’t use the standard mileage rate in the first year you own and use a specific car for business, you can never use that method for that car. However, you can switch to actual expenses in subsequent years, or switch back and forth between the two as long as you began with using the standard mileage rate.
If you lease a car, however, you must use the standard mileage rate for the entire period of the lease if you use it in the first year.
Which Deduction Method Should You Use?
It’s certainly easier to track only your mileage, rather than meticulously tracking all expenses associated with owning or leasing a car. However, in some cases it might reduce your tax liability to use the actual deduction method.
With accurate bookkeeping records, either method of transportation tax deductions will be easy for a certified tax accountant to calculate so you can reduce your business tax liability and put that money back in to growing your business.