How to get the biggest tax deduction
There are two ways a driver can calculate their work-related vehicle costs: standard mileage rate and actual expense.
To know which deduction is best, a driver should calculate both and see which one gives them the biggest tax deduction. This should be completed every year as some years actual expenses will produce a larger tax deduction and in others the standard mileage will be more beneficial.
1) Standard mileage rate
The standard mileage rate hinges on the yearly rate set forth by the IRS. For 2021, the IRS allows a 56 cents claim per business mile driven. That means that for every 1000 miles driven, $560 can be deducted from a driver’s taxable income.
The standard mileage rate deduction is a straightforward and easy way for drivers to save money during tax season. One GrubHub driver on Reddit said:
I average 40–50k miles/year This industry only makes sense after you take your mileage deduction at tax time. It’s 50+ cents per mile. So if you have a $10,000 car and get 100k miles out of it, you get $50,000 in tax deductions.
2) Actual expense
The second method of calculating a mileage deduction is a bit more complicated than the first. The actual expense method requires drivers to figure out all the money they’ve spent in order to operate their vehicle for work purposes.
While this is not a comprehensive list, some actual expense costs a driver can include are:
- Lease payments
- Gas
- Oil changes
- Tire rotations
- Auto insurance
- Title, licensing, and registration fees
- Vehicle depreciation
- Brake pad replacements
- Other various maintenance work
Once these costs are added together, a driver must decide the percent of time they use their car for work vs personal use. That percentage is then multiplied by the total amount spent on operating their vehicle. To read more about how to perform this calculation, visit Turbotax.com.
It’s important to note that the IRS requires proof of receipts, mileage logs, and other documentation for anything used when determining deductions.
Keeping an organized record of expenses can be challenging, especially for the actual expense method. But, thanks to technology, tracking mileage is easier than ever.