Standard Mileage Rate Vs Actual Expenses Which Is Better

What Is the Standard Mileage Rate?

The first option for deducting driving expenses is to use the standard mileage rate. In this deduction, you will calculate the total miles driven and multiply it by the standard mileage rate. The standard mileage rate changes per year. For the 2022 tax year, there were two standard mileage rates because of the high price of gas:

January to June: 58.5 cents per mileJuly to December: 62.5 cents per mile

How To Calculate the Standard Mileage Rate

Let’s say you drove 50 miles to and from your small business every month in 2022. If we use the standard deduction, the calculation looks like this: 50 miles x 58.5 cents x 6 months = 175.5 50 miles x 62.5 cents x 6 months = 187.5 175.5 + 187.5 = 363 You can deduct $363 from your business taxes for your business travel. This is based on the standard mileage rate.

Who Can Take Deductions Using the Standard Mileage Rate?

You can make deductions using the standard mileage rate if:

You have used the standard mileage rate since you first leased or bought the car. You have leased a car and intend to use the standard mileage rate deduction for the entirety of the lease You use four vehicles or fewer in your daily business operations

You cannot use the standard mileage rate if:

You have used the actual expense tax deduction and claimed the accelerated depreciation deduction in previous years You have claimed a Section 179 deduction on the vehicle

If you use the standard mileage rate you cannot deduct:

Lease payments Depreciation Actual auto expenses

You can still deduct business-related expenses like:

Parking fees and tollsInterest if you have a loan on the carApplicable registration fees and any taxes

What Is the Actual Expenses Method?

The other option available for deducting driving-related expenses is the actual expenses method. You can use this method if you are not able to use the standard mileage rate or if you simply choose not to. The actual expenses method requires you to total up your car’s expenses like gas, registration fees, parking fees, tolls, lease payments, and more (see below). You must use the actual expenses method if:

You have a fleet of vehicles (more than four) used simultaneously for your business activitiesYou lease a car and do not plan on using the standard mileage rate for the entirety of the leaseYou used the actual expense calculation when your vehicle was first used for business purposes

What Are the Actual Expenses You Can Deduct?

When you use the actual expenses method to calculate your tax deduction for business travel on a car, you can add up and deduct the following expenses:

Interest on a vehicle loan Vehicle depreciation (leased vehicles cannot be depreciated) Registration fees and tax Parking fees and tolls Garage rent Lease payments Insurance Gasoline Oil Maintenance Repairs Insurance Tires License plates Registration fees

How Much Can You Deduct With the Actual Expenses Method?

You can only deduct the portion of the expenses that was used for business. So if 60% of your driving was for business, you can deduct 60% of the expenses.

How To Calculate the Actual Expenses Deduction

Let’s say you drove 10,000 miles in 2022, but only 6,000 were for business. That’s 60% of the miles driven for the year. Your actual car expenses for all 10,000 miles in 2022 were $3,000. The calculation would look like this: 60% x $3,000 = $1800 You could deduct $1,800 from your business taxes.