Business Mileage – The Holy Grail of Tax Deductions

Today’s Classic is republished from White Coat Investor. You can see the original here.

Enjoy!

One of my favorite tax deductions is to deduct mileage used for business. If you are driving your car for business, you can deduct 56 cents [2021] for every mile you drive. That's pretty generous in my opinion considering that $4 per gallon gasoline for a car that gets 30 miles per gallon costs you 13 cents per mile. Obviously, there are other expenses associated with driving a car including maintenance, repairs, depreciation, and insurance, but give me a break. 56 cents is awesome.

How much is it worth?

Imagine you own a $2,000 car. Now assume a 40% marginal tax rate. How many miles do you have to drive the car to pay for the car? Answer—9,091. Many business owners drive twice that every year. Even if you subtract 13 cents a mile for gas, it's only 11,905 miles to pay for the car. Even a $2,000 car is going to last 12,000 miles. The best part about this deduction IMHO is that they give it to you for something you have to do anyway. So it's basically free money.

How it works?

Here's how the deduction works. This is from IRS Publication 463 [2021].

The basic rule is that you can't deduct your commute, but you can deduct everything else. If you work at two hospitals, for instance, you can't deduct driving into the first one, or driving home from the second one, but you can deduct the miles between them. You have to be a business owner too—paid on a 1099 or a K-1, not a W-2. Unreimbursed employee expenses have never been as valuable, since they were subject to the 2% of income floor on Schedule A. Even that went away from 2018 to 2026 except for reservists, musicians, and actors with multiple employers, fee-basis state/local government officials, disabled employees (costs related to their disability), and educators (up to $250 a year).

My Scheme Foiled

So I had this great scheme initially. Since I have a home-based business (this blog), I had a plan to “commute” down the stairs to the home office, then drive “between my businesses” to the hospital and back to my home office, then commute back up the stairs. Unfortunately, it turns out you can't do this. If one of your sites of business is your home office, there is an additional requirement. Both jobs have to be in the same industry, which mine are not. It's too bad as it would be worth at least a few hundred dollars a year to me.

I did manage to get a few miles for each business, but nowhere near the mileage I drive between my home and the hospital.

Other Mileage

There are other miles that you can deduct as well. Mileage driven for a charitable cause is deductible at 14 cents [2021] a mile. Mileage for medical care (receiving, not giving, and subject to a 10% floor on Schedule A) and moving is deductible at 16 cents [2021] a mile. It's not quite the business mileage deduction, but it's better than a kick in the teeth.

Actual Expenses

You can deduct your actual expenses for business miles instead of the 56 cents. But you're going to have to be spending an awful lot on your car to beat that 56 cent figure. Besides, who wants to keep track of all that? It's bad enough that you have to keep a mileage log. But if you're driving a fancy Audi or Tesla or leasing just about anything perhaps it would be worth the hassle. Depreciation, car loan interest, and lease payments certainly count toward the actual expenses.

The Mileage Log

If you get audited, you'll need to show the mileage log you're supposed to be keeping. This is supposed to be kept contemporaneously (meaning you write it down when you drive the miles, not reproduce it later). You need the date of the trip, the mileage of the trip (preferably with beginning and ending odometer readings), and the purpose of the trip.

Can My Business Pay for My Car?

Lots of people have heard that your business can lease or even buy your car and have it work out well. Unfortunately, many people are abusing this and their practice would never hold up in an audit. You cannot have your business buy and pay for the car (essentially paying your transportation costs with pre-tax dollars) and then use it personally. It can ONLY be used for business purposes. Again, commuting is NOT a business expense. Only the business use is a business expense, the rest is taxable income to you. If you're claiming 100% business use for the car, expect an audit. Almost nobody uses their car ONLY for business use. So again, you'll have to keep a mileage log for both business and personal use and then multiply your actual expenses by the ratio of business miles to total miles.

Brand new trucks and large SUVs used more than 50% for business (defined as a vehicle with a gross vehicular weight [not curb weight] more than 6,000 lbs—a Chevy Suburban barely qualifies) are eligible for special depreciation rules. Basically, you can deduct up to $25K of depreciation in the year you buy it rather than only 56 cents [2021] a mile, although it is decreased by non-business use. In addition, all vehicles are currently eligible for 100% bonus depreciation for both new and used (if new to you) vehicles through the end of 2022. Again, this is decreased by non-business use.

The bottom line is that business miles can be a fantastic business deduction, especially on an inexpensive car. Just remember the main rules—only business miles count as a business expense and commuting is never business mileage.

What do you think? Do you deduct business mileage? Any tips for maximizing this deduction? Comment below!

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