The question I get more than any other from self-employed clients: what can I legitimately deduct as business expense? Unless you have employees and payroll tax, the largest deduction is often mileage. The rates for the mileage deduction change each year; for 2016 the rate is $0.54 per mile. Therefore, if you drove 10,000 business miles in 2016, you get a mileage deduction of $5,400. That’s huge for most of my small business clients!
In addition to mileage, you can deduct a portion of the property tax you paid in that year. If you have financed the purchase of that vehicle, you can also deduct a portion of the interest paid on that loan in 2016. The “portion” to which I refer is the percent of business miles as compared to total miles for the year. For instance, if you drive a total of 20,000 miles and 10,000 of those are related to business, you can deduct 50% of personal property tax and interest paid on that vehicle.
There are many ways to track mileage, especially in this day of smart phone apps. There are far too many apps available (and used by my clients) to list here. As with finding an app to serve your specific purpose, shop around, try them out and find what suits you best. If you’re like my dad and don’t have a smart phone, good old pencil & paper will suffice.
What should you include on your mileage log? This is the example the IRS provides:
You can, of course, track actual expenses: gas, oil, repairs, etc. Generally, the mileage deduction is easier to track and will provide as much, if not greater, deduction.
If you have questions that weren’t answered here, I urge you to reach out to your tax preparer and seek those answers out before tax season is upon us!