As your business’s income grows, your tax bill will become more painful each year. We have a progressive tax system, which means most people pay less taxes on their first dollar of income than their last. Tax planning is a great way to ensure you increase your take-home pay without having to work more hours or add more clients (unless you want to).
Business owners’ most valuable tax deductions come from expenses they already pay. Over 280 million cars were registered in America for the year 2022, which led this Certified Financial Planner to believe that most business owners have at least one car. Even if you don’t specifically use your vehicle for your business (your car doesn’t have to be a delivery truck), you likely rack up a substantial amount of miles driving for tasks related to your business. A little extra bookkeeping could lead to a nice tax break for you each year.
IRS Standard Mileage Tax Deduction For Business Use
Those of you who are self-employed or earn money as an independent contractor may be able to decrease your tax bill based on using your car for business purposes. How much you are able to deduct from your taxes will depend on how and how much you use your vehicle. While commuting is not deductible, you can likely get a deduction for trips to see clients or purchase supplies for your business.
You will also have the choice of choosing a per-mile tax deduction or a deduction for the actual cost of your car. Remember, you can only take the mileage deduction one of these ways, not both.
Costs you may incur for parking or road tolls are deductible elsewhere on your tax return, regardless of how you choose to take the mileage tax deduction each year.
Mileage Tax Deduction Rates For 2023
For tax year 2023 (the taxes you file in 2024), the IRS standard mileage rate is 65.5 cents per mile when used for business. That drops to 14 cents per mile when using your car for charity work. The mileage tax deduction is 22 cents per mile in 2023 for distance driven for medical care or moving expenses.
Mileage Tax Deduction Rates For 2024
For tax year 2024, new mileage tax deduction rates have been announced. Business mileage rates have increased by 1.5 cents, charity miles remain the same at 14 cents per mile, and medical and moving miles surprisingly decreased by 1 cent. The mileage tax deduction for business use is 67 cents per mile. Driving for medical and moving expenses will be tax deductible at 21 cents per mile.
How To Calculate Your Standard Mileage Tax Deduction
The standard mileage deduction is the simplest way to calculate your driving expenses yearly. Simply multiply (feel free to use a calculator) the number of business miles driven by the IRS mileage rate for the tax year. For this option, you will need to keep records of mileage driven.
How To Calculate the Actual Expenses Mileage Deduction
Yes, tracking a lot of little drives sounds like a pain to me, too. If you want to avoid the hassle of tracking all of your business mileage, you can track and deduct the actual expenses you incur while running your car for business purposes. These expenses include, but are not limited to, depreciation, registration, lease payments, gas, EV charging, oil changes, insurance, repairs, and tires.
If you are looking for even more tax deductions, there is still time to open and fund a Solo 401(k), SEP IRA, or even a Cash Balance Plan. Depending on your age or income, you could potentially shave hundreds of thousands of dollars off your taxable income for 2023. You might be able to double that amount if your spouse also works in the business.
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