Standard Mileage Rate - Not Always Better
The standard mileage rate may be simpler but is not always better. Instead of deducting actual expenses, you may have the option of using an IRS-provided standard mileage rate to figure your deduction for the business use of an automobile. Given the choice, you may favor the standard mileage rate because it’s simpler — there’s no need to keep gas receipts and other detailed expense records.* But the standard mileage rate doesn’t necessarily result in the biggest deduction.
How Deductions Are Calculated
Currently, the standard mileage rate is 55.5¢ per mile — unchanged from the second half of 2011. The standard mileage rate covers not just gas, but also other expenses of operating a car, such as oil, insurance, repairs, and maintenance. The deduction is figured by multiplying the number of business miles you’ve driven by the standard mileage rate. (Parking and tolls represent additional deductions.)
With the actual expense method, deductible expenses include gas, oil, repairs, tires, insurance, and license and registration fees. You also may deduct depreciation (or lease payments). If you use your auto for both personal and business purposes, only the portion related to business use is deductible. (This is figured by multiplying the year’s actual expenses by the ratio of business mileage to total mileage.)
Do a Comparison
Unfortunately, there’s no quick rule of thumb for selecting the most favorable method. Factors that can make a difference include the vehicle’s gas mileage; how much you spend on repairs, maintenance, and insurance; and the number of business and personal miles driven.
You’ll have to rule out using the standard mileage rate in certain situations. For example, it’s not available if you’ve previously claimed a Section 179 expensing deduction or an accelerated depreciation deduction for the car. But, if you are eligible, consider keeping the receipts and records that will be needed to calculate the deduction both ways.
* The IRS requires that taxpayers using either the standard mileage rate or the actual expense method maintain a detailed log (or other record) that contains certain information. Ask us for details.