Standard Mileage method. Each method has its advantages and disadvantages, and they often produce vastly different results.
If you drive for a company such as Uber, the business use of your car is probably your largest business expense. Taking this tax deduction is one of the best ways to reduce your taxable income and your tax burden. This is doubly important because you have to pay two separate taxes on your ridesharing income—once for your income tax and once for your self-employment tax the amount you contribute as a self-employed individual to Social Security and Medicare.
Both taxes are based on the net profit of your business, which can be reduced by taking a deduction for the use of your car for your business. Actual Expenses might produce a larger tax deduction one year, and the Standard Mileage might produce a larger deduction the next. If you want to use the standard mileage rate method, you must do so in the first year you use your car for business.
In later years you can choose to switch back and forth between the methods from year to year without penalty. The chart below breaks your total business expenses into two main groups:. For this reason, many people use a single bank account or credit card for all their business transactions. That way they can refer to their monthly statements or online records to accurately track their business expenses.
As the name suggests, the Actual Expenses method requires you to add up all the money actually spent in the operation of your vehicle. The Standard Mileage method is a much simpler way of calculating the business use of your car.
It does not require you to track individual purchases and save receipts. Instead, you simply keep track of your mileage for the tax year.
As with other tax deductions, you must determine the percentage of your mileage that applies to your business. Once you have determined your business mileage for the year, simply multiply that figure by the Standard Mileage rate.
Your Money. Personal Finance. Your Practice. Popular Courses. Key Takeaways There are two methods of claiming the mileage deduction. To use the standard deduction, you must keep a log of the miles you drive for work. To use the actual expense method, you must save all the receipts of expenses related to driving for work. Article Sources. Investopedia requires writers to use primary sources to support their work.
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This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Related Articles. This option is not allowed if you:. Choosing the standard mileage rate vs. Lastly, recordkeeping is a must for anyone who wants to claim a tax deduction for mileage. You could use pen and paper to keep track — or even log your miles from your computer — but there are also smartphone apps that can make tracking mileage a lot more convenient.
In addition to keeping records on your miles, you should also keep receipts for parking and toll fees. Even if you use the standard mileage rate, parking and tolls other than parking and tolls related to your main place of business may be deductible. We understand you might want some help when it comes to claiming mileage on your taxes. Have a side business?
Take control of your taxes and get every credit and deduction you deserve. You can note your start and end odometer miles at the beginning and end of the year.
You can use our simple mileage tracking spreadsheet printable spreadsheet that you can keep in your car. These logs also have space for other business expenses you may want to track. Use a mile-tracking app. One easy method to track miles is to download a mile-tracking app.
There are many app options. Both apps work by using the location on your phone to track mileage automatically. All you need to do is turn on the app and start the tracking mechanism. Both apps produce a mileage log that you can use if you are audited by the IRS. Use your Uber or Lyft app to track mileage deductions not recommended. However, this number may not be as accurate as tracking your own miles and does not produce a mileage log that you can show the IRS.
It may also be tricky to rely on this system if you drive for both Lyft and Uber and switch between the two apps. All information on this site is provided for educational purposes only and does not constitute legal or tax advice. Please seek a tax professional for personal tax advice. Early childhood programs have a unique opportunity to directly reach parents and guardians….
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