If you’re a small business, knowing how, what and when to deduct for business use of your company vehicles can make a big difference in your tax rates at the end of the year. The Internal Revenue Service has issued its 2015 optional standard mileage rates for business, charitable, medical or moving uses. Here’s what you need to know now to make the most of the deductions.
Every year, the IRS sets standard mileage rates for business based on an annual study of fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas and oil. Rates for medical and moving purposes are based on variable costs like gas and oil. You need to keep in mind a few points when considering whether deductions apply to you:
- Business miles are miles you’ve driven specifically for business (e.g., to meet with a client or your accountant)
- Business miles are NOT miles driven between home and your workplace – those are commuting miles, and are not deductible
- You may not use the business standard mileage rate for a vehicle after claiming accelerated depreciation
- The standard rate is not available to fleet owners
- There are maximum standard automobile costs that may be used in computing an allowance under a fixed and variable rate plan
Once you’ve discerned what you can and can’t include, here’s what you need to know to do your calculations. Rates are as follows:
- 57.5 cents per mile for business miles driven (up from 56 cents in 2014)
- 23 cents per mile driven for medical or moving purposes (down half a cent from 2014)
- 14 cents per mile driven in service of charitable organizations (standardized, set by law)
Now is the time to start keeping records. If you plan to claim a deduction for the business use of a vehicle, you must keep a detailed log of business miles and any other expenses you plan to write off. If you opt not to claim deductions based on standard mileage rates, you may alternatively claim deductions based on the actual costs of using your business vehicle.
SJ Gorowitz specializes in supporting the tax and accounting needs of expanding and emerging businesses and their owners.