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Actual vs. Mileage Car Deductions for Taxes: What You Need to Know

December 07, 20234 min read

As a fitness professional, traveling for work is inevitable. Whether it’s attending a fitness conference, delivering a presentation, doing in-home workouts, or meeting clients in a different location, travel expenses can add up quickly.

Fortunately, the IRS provides two different ways to deduct your travel expenses – actual expenses and mileage deduction. In this blog, we’ll dive into the specifics of each method and help you decide which one is right for your business.

Just like we track our clients’ progress, we need to keep track of our business expenses.

Actual Expense Method

When using the actual expense method, you can deduct the total cost of operating your car for business purposes. This includes gas, repairs, car insurance, and even car washes. However, it requires more record-keeping and documentation. To use this method, you must keep detailed records of all expenses associated with your car and be able to prove the percentage of time the car is used for business purposes. This method usually benefits those whose car expenses are higher than the standard deduction rate. There are also restrictions on the type and value of vehicle used for business purposes.

Standard Mileage Method

The standard mileage rate is a simpler way to track your car expenses for business purposes. The IRS sets the standard mileage rate each year, and for 2021, it is 56 cents per mile driven for business purposes. To use this method, you must keep a record of the number of miles you drive for business purposes only. This method is best used for those whose car expenses are lower than the standard mileage rate, or those who use their car for both business and personal use.

Factors to Consider

When deciding which method to use, consider your driving habits and expenses. Also consider how disciplined you'll be with tracking and if your business use will greatly outweigh personal use. The actual expense method may be more beneficial if you drive an older car with higher maintenance costs, drive long distances, have expensive insurance, or drive a lot for business purposes. On the other hand, the standard mileage rate may be more beneficial if you drive a newer car with lower expenses or have a shorter commute. It is important to note that once you choose a method, you must use it throughout the life of the car.

It is important to note that once you choose a method, you must use it throughout the life of the car.

Keeping Track of Your Car Expenses

No matter which method you choose, it is important to keep track of your mileage and expenses throughout the year. This can be done through a mileage log or a mobile tracking app. You should also keep all receipts for car-related expenses. These records will make filing your taxes much easier and ensure that you are maximizing your deductions.

Tax season can be stressful, but it doesn't have to be. By understanding the difference between actual expenses and mileage deductions, you'll be better prepared for tax season and maximize your business-related car expense deductions. Remember to keep accurate records and consult with a tax professional if you're unsure which option is right for you. By taking these steps, you could end up with a more significant deduction and a more stress-free tax season.

🚗 Pros & Cons

Option 1: Actual Expenses

Pros:

- You can claim all expenses related to your vehicle use for business purposes, which can be advantageous if your actual expenses exceed your mileage.

- If your actual expenses are less than the standard mileage rate, you can claim a higher deduction by choosing the actual expenses option.

Cons:

- Keeping track of all expenses can be time-consuming and complicated, especially if you use your car for both business and personal purposes.

- If you don't keep accurate records or can't prove that the expenses are truly business-related, you could face IRS penalties and fines.

Option 2: Mileage

Pros:

- This option is much easier and less time-consuming than tracking actual expenses.

- The standard mileage rate is often higher than actual expenses, which can result in a more significant deduction.

- It doesn't matter what type of car you drive or how much it depreciates.

Cons:

- If you drive an older car that needs lots of repairs, the actual expenses option might result in a higher deduction.

- If you don't keep a logbook with your business mileage, you run the risk of an IRS audit

Also check out one of our favorite CPAs on YouTube:


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Erica Haller

Hi, I am Erica Day I’m a middle child, problem solver, and self-proclaimed numbers nerd. You’ll find me enjoying the small-town feel of my little neck of the woods in New Jersey. As a former professional photographer and long time business owner, I’ll likely have a camera on hand. Also a mom to three girls and two sweet, but high maintenance, pups. With a degree in Finance and almost two decades of entrepreneur expertise, I’ve found my calling providing advisory services to CEOs looking to scale and increase profits.

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