If your business requires any driving, you owe it to yourself to make a vehicle tax deduction. It’s one of the most common business tax deductions because so many industries require vehicles to get work done. Every year, the Internal Revenue Service sets a standard mileage rate so business owners can calculate their deduction accurately. For 2017, the rate is dropping slightly to 53.5 cents per mile as opposed to 54 cents per mile in 2016. The new rate goes into effect on January 1st 2017, so be aware of this small adjustment within the next month. Keep in mind that you must keep accurate records of your travel dates, destinations, and reasons for driving if you’re hoping to capitalize on the deduction.
How It’s Calculated
You might be wondering what determines the transportation tax deduction rate, as it seems to fluctuate randomly on a yearly basis. The truth is, there is a method to the madness, and the IRS calculates the rate based on changing market conditions. The government agency reviews a study of the fixed and variable costs of operating a motor vehicle for a given year before changing the deduction standards. The largest factors for the 2017 rate were declining fuel prices that slightly outweighed rising vehicle insurance and maintenance costs. While you may not receive quite as much of a deduction next year, it also costs slightly less to get from Point A to Point B.
An Alternative Option
If you prefer not to use the standard rate for business transportation, you have the option to calculate the actual cost of operating your vehicles. This method requires much more detailed record keeping, but can potentially result in a larger deduction. You can rack up extra deductions for gas, oil changes, repairs, licenses, parking fees, insurance costs, car washes, and more when you calculate every vehicle related expense.
What’s Right for Your Business
Choosing between standard mileage rates and actual vehicle expenses can be tricky — if you have a small, old, or inexpensive car, you’re more likely to benefit from standard mileage. If you’re willing to track every expense, and you drive a more expensive vehicle, actual vehicle rates may be worth the effort. At Charles Motl & Associates, we are always available to consult your business on its vehicle tax deductions. Learn more about our tax services to get the most out of your 2017 filing.