How to Decide Which Mileage Tax Deduction is Best

Tax deductions can be tricky things. For instance, many people don’t know that they can deduct business mileage from their taxes, as long as that mileage is work related and not simply the act of driving to and from their place of employment. There are two different ways to deduct mileage, though. You can either deduct a percentage of all work-related transportation costs, up to 50 percent of the total, or you can simply deduct roughly 48 cents for each mile. Here’s how to decide which of these two methods will benefit you most.

Instructions

Difficulty: Moderate

Things You’ll Need:

• A ledger
• 1 month of receipts

1. First, keep a ledger of your business mileage. Documentation is the key to deducting anything from your taxes. For our purposes, it’s crucial that you have at least 1 month of mileage recorded. That will be enough of a sample to get a good idea of what your yearly work-related mileage will be.
2. Take whatever your monthly mileage total was and multiply that number by 12. This will give you a rough estimate of what your yearly business mileage will be. In the end, this will be about how many miles you’d have to deduct on your taxes.
3. Figure out your yearly work-related transportation expenses. Do this by looking at your receipts and figuring out how much you spend each month on gas, car payments, vehicle maintenance and any other car-related expenditures. Add all of these numbers together and multiply the result by 12. Then estimate how much of that usage is work related. For instance, if you think that half of your car usage is for work, then 50 percent of your car expenses are deductible on your taxes.
4. Compare these two different numbers--the number of work-related miles you drive each year and your annual work-related car expenses. In the end, the IRS will allow you to deduct roughly 48 cents for every mile you drive, or the entire amount of your work-related car expenses, up to 50 percent. So take your yearly miles and multiply them by 0.48 to see how much you could deduct in mileage and compare that with your total car expenses. Choose whichever number nets you a bigger tax deduction and apply that method to next year’s taxes.

Tips & Warnings

• Be religious about your bookkeeping.
• Always keep receipts.
• Don't try to overestimate your numbers. Doing so may bring the full wrath of the IRS down upon you, which may result in a terrible fate: an audit.