Standard Mileage Method or Actual Expenses Method: Which is Better?

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When you use your vehicle for your business, you are entitled to choose one of two methods to claim business expenses: the standard mileage method or the actual expenses method.

If you use the standard mileage method you can claim $.54 cents per business mile for business trips taken in 2016. (We won’t know the rate for 2017 until December.) In addition, you can deduct parking, tolls, and the business portion of car loan interest and car property tax (a tax on the value of your car paid as part of your annual car registration fee in some states).

Note: Many providers (and tax professionals) forget to deduct a portion of car loan interest!

The business portion is determined by dividing the number of business miles driven by the total number of miles the car was drive. So, if you drove 2,000 business miles and 10,000 total miles in 2016, your business portion is 20%.

If you use the actual expenses method you can claim the business portion of all the actual expenses incurred while operating your vehicle: gas, oil, repairs, car insurance, parking, tolls, car loan interest, car wash, car depreciation, jumper cables, etc.

Which method is better?

In most cases, you will probably be better off using the actual expenses method.

Most family child care providers choose the standard mileage method because it is much easier to claim. But, the standard mileage rate may not be high enough to cover all the actual costs (particularly in states like California where the price of gas is significantly higher than in most other states). If you use the actual expenses method you will have to save receipts for all car expenses. This extra work discourages many providers from using the actual method.

In the first year you use your vehicle for your business you must choose which method to use when filing your taxes. If you choose the standard mileage method you can switch to the actual expenses method in later years. But, if you choose the actual expenses method in the first year, you cannot switch over to the standard mileage method in later years.

Since it’s late in the year, it won’t make sense to use the actual expenses method unless you have been diligent about saving all vehicle receipts so far this year.

But, it may be worthwhile to start saving vehicle receipts starting next year and see which method is better for you at the end of the year.

You can use the standard method for one vehicle and the actual expenses method for another.

KidKare

You can use the Minute Menu Kids Pro software (now called KidKare) to help you determine which method is best for you. When you enter your miles driven while entering your business expenses, you can see your vehicle deduction for the year using the standard mileage method by opening the Vehicle Mileage Report. If you enter your actual car expenses (gas, oil, repairs, insurance, depreciation, etc.) into the software you can compare your vehicle expenses using either the standard mileage method or the actual expenses method by opening the Vehicle Deduction Comparison Report. If you aren’t going to use the actual expenses method, don’t count the actual car expenses that appear on the Schedule C report.

See my previous articles:

“Claiming Vehicle Expenses – The Standard Mileage Method”

“Claiming Vehicle Expenses – The Actual Expenses Method”

Tom Copeland – www.tomcopelandblog.com

Image credit: https://www.flickr.com/photos/thomasrdororg/

record-keeping-smallFor more information about claiming car expenses, see my annual Family Child Care Record Keeping Guide.



Categories: Car Expenses, Record Keeping & Taxes

2 replies

  1. So if I do the standard method-
    Question 1
    Is the rate .57 per mile a set rate to deduct or do Can I use only what my business portion has been figured out, using my year over-all mileage.?
    Question 2.
    My accountant continues to tell me I can never deduct my YTD finance paid on my vehicale o use for childcare.
    And I missing something? Everything I read looks like I’m allowed to.
    Thanks!
    Melissa Sebring -Michigan

    • The standard mileage rate for 2016 is $.54 per business mile. If you use this method to claim car expenses, multiply $.54 by your business miles and add the business portion of car loan interest. See IRS Publication 523 which says self employed people are always entitled to claim a portion of car loan interest. If you use the actual expenses method of claiming car expenses you can multiply your actual expenses by the business portion of the use of the car. The business portion is determined by dividing the number of business miles you drove by the total number of miles the car was driven.

      I cited the wrong IRS publication above. I should have cited IRS Publication 463, page 16 where it says that self employed people can deduct the business portion of car loan interest.

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