One of the most overlooked small business tax deductions is sitting in your driveway. If you’re not taking a deduction for the business use of your vehicle, you’re overpaying your taxes by hundreds if not thousands of dollars every year. This article will explain how to take the IRS mileage rate deduction and put some serious money in your pocket.
1. Maintain a mileage log of all business driving. Keep a notebook in your car, and every time you take a business trip, write down the date, miles driven, and the business nature of the trip. A “business trip” can be going out-of-town for a seminar or meeting; and it can also be going to your local office supply store to buy paper or to your favorite restaurant to meet a prospective customer for lunch.
2. Be consistent. Make this a habit. If necessary, put a sticky note on your dashboard that says “Save Money – Record Mileage!” Do whatever it takes to remind yourself that this is not difficult. This is easy. Nor is this rocket science — you do a quick calculation, write a few words on a sheet of paper, and just like that, you reduce your tax bill. It’s like magic!
3. Don’t even think about whining about the perceived tedium of writing down your mileage every time you drive for business. Don’t think “Oh how I hate doing this.” Instead think “Oh how I love to save money by spending 30 seconds to record one line of information that will reduce my tax bill by hundreds (or thousands) of dollars this year”.
4. Keep these numbers in mind: the IRS mileage rate (as of July 1, 2011) is 55.5 cents per mile. So, for every 10,000 business miles, you’re racking up a $5,550 tax deduction. If you’re in the 35% tax bracket (15% federal income tax + 15% self-employment tax + 5% state income tax), that translates into $1,942 in actual tax savings. Whoa! Not too shabby, right? This simple record keeping task is worth almost $2,000 every year, so what is there to complain about?
5. Keep some more numbers in mind: if you save $1,942 via the vehicle mileage rate deduction, and over the course of the year, it takes you a total of 2 hours to record the mileage, you just made $971 per hour. Do you have any other activity in your business (or outside your business) that pays you that kind of money for 2 hours of work? I think not. Even if it takes you 4 hours to track the mileage, that’s $485.50. Again, where can you make that hourly wage?