As your business grows each year, it may also feel like your tax bills keep growing more painfully. Generally speaking, America has a progressive tax system, which means most people pay less taxes on their first dollar of income than their last. Proactive tax planning is a great way to ensure you increase your take-home pay without working more hours or adding more clients (unless you want to).
Business owners’ most valuable tax deductions come from expenses they already pay. Over 296 million cars were registered in America for the year 2024, which led this certified financial planner to believe that most business owners have at least one car. Even if you don’t specifically use your vehicle for your business (your car doesn’t have to be a delivery truck), you likely rack up a substantial number of miles driving for tasks related to your business. A little extra bookkeeping could lead to a nice tax break for you each year.
What Is The IRS Standard Mileage Tax Deduction
Those of you who are business owners, self-employed or earn money as an independent contractor may be able to decrease your tax liability based on business use of your car. How much you are able to deduct from your taxes will depend on how and how much you use your vehicle. While commuting is not deductible, you can likely get a deduction for trips to see clients, purchasing supplies for your business or even business trips to the post office.
You will also have the choice between a per-mile tax deduction or a deduction for the actual cost of using your car. Remember, you can only take the mileage deduction in one of these ways, not both.
Business costs you may incur for parking or road tolls are deductible elsewhere on your tax return, regardless of how you choose to take the mileage tax deduction each year.
Mileage Tax Deduction Rates For Tax Year 2024
For tax year 2024, the mileage deduction is 67 cents. Charity miles remain the same at 14 cents per mile, and medical and moving miles surprisingly decreased from 22 to 21 cents per mile.
Mileage Tax Deduction Rates For 2025
For tax year 2025, new mileage tax deduction rates have been announced. Business mileage rates have increased by a whopping three cents per mile. Charity miles remain the same at 14 cents per mile, and medical and moving miles also remain the same at 21 cents per mile.
How You Can Calculate Your Standard Mileage Tax Deduction
The standard mileage deduction is the simplest way to calculate your driving expenses yearly. Simply multiply (feel free to use a calculator) the number of business miles driven by the IRS mileage rate for the tax year. For this option, you will need to keep records of mileage driven.
For example, if you drove 10,000 miles for work in 2024, you would multiply 10,000 x 0.67 = $6,700. In plain English, you would be getting a tax deduction for $6,700. If you are a business owner in the higher California and federal tax brackets, this could mean tax savings of over $3,350.
How To Calculate the Actual Expenses Mileage Deduction
Many business owners will find the actual expense mileage tax deduction to be more beneficial. This is especially the case if your car expenses exceed 67 cents per mile in 2024. It’s not hard to do with the price of cars, insurance and gas these days.
I don’t know about you, but tracking every single little drive seems like a waste of time to me. If you want to avoid the hassle of tracking all your business mileage, you can track and deduct the actual expenses you incur while running your car for business purposes. These expenses include but are not limited to, depreciation, registration, lease payments, gas, EV charging, oil changes, insurance, repairs and tires.
This is just one valuable tax deduction that is easy to overlook. Hopefully, your fiduciary financial planner will bring even more valuable tax-planning strategies to help make your business even more profitable. If you want more tax deductions, there is still time to open and fund a Solo 401(k), SEP-IRA or a Cash Balance Plan. Depending on your age or income, you could potentially shave hundreds of thousands of dollars off your taxable income for 2024. You might be able to double that amount if your spouse also works in the business.
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