Sun, 22 May 2022

How are Tax Deductions for Mileage Calculated?

07 May 2022, 02:42 GMT+10

If driving is an essential part of your job, or you use vehicles for business purposes on a regular basis, you must know that you can claim mileage whenever you are filing an income tax return. There is a lot to discuss and talk about as claiming mileage is a vast topic. You may also be able to claim a tax deduction for mileage if you are from the armed forces, traveling for charity work, or for any medical reasons.

Some keynotes:

* You may be liable to deduct commuting miles for required travel from one business location to another or for temporary assignments at a new location.

* If you are self-employed, you can deduct business miles in many other situations.

* Keep clear and precise records if you claim the deduction or want to claim vehicle expenses.

How to calculate the tax deduction for mileage?

There are mostly two ways used to calculate your mileage for your tax return. These are-

1. Standard mileage rate -

The standard mileage rate is a very simple method to calculate your mileage. The number of miles driven is taken into consideration in order to calculate the deduction. You keep track of your miles driven for IRD-approved purposes (business, medical activity, charitable work). Then you need to multiply them by the correct mileage rate. Also, it is not necessary for you to keep every track of purchases and save various other receipts.

If you want to use this method, you must do so in the first year you use your car for business. In the coming years, you can switch to different methods without paying any penalty. If you choose the standard mileage rate for a vehicle you're leasing, you need to stick with that method for the entire lease period. Keep a log of your miles in order to calculate your deductions at the end of the year.

2. Actual costs:

In the actual cost method, you can basically choose to deduct the actual costs of using your vehicle instead of deducting your mileage. But if you're using a vehicle for business as well as personal reasons, only miles driven for business can be deducted. The following expenses are also included-

* Gasoline,

* Maintenance expenses such as oil changes, brake pad, replacements, etc.,

* Auto insurance,

* Licensing or registration fees,

* Repair or purchase new tires,

* Depreciated value of the vehicle or lease payments.

You'll need to keep receipts, documents of your vehicle expenses, and various important logs properly and safely. These documents will support your deductions in case when you are audited.

How to choose the correct method:

There are pros and cons to each method. In order to keep things simple, the standard mileage method might be the best option. It is always advised to use the standard mileage method in the first year of the car you drive so that you easily switch to other methods in the future years. The actual cost method might produce a larger tax deduction, especially if you drive an expensive vehicle or if you paid a lot for car upkeep. Tracking actual car expenses requires detailed record-keeping. You must keep track of every receipt related to your car, along with a log where the number of business miles driven is clearly mentioned.

Try both calculations, know about each method's various pros and cons, limitations, and features, and then determine which method is best or apt for you that will yield the larger deduction and greater tax benefit you.

Use this widget to calculate quarterly tax:

Miles that are liable for deduction-

Not every mile counts as a tax deduction. However, the following miles covered are eligible for deductions-

* Miles that are driven to pick up passengers,

* Miles that are driven with any passenger in the car.

* Miles that are driven returning from drop-off points to a place to wait for another ride request,

* Any other mileage related to the business.

Who is eligible for this deduction?

Employees were earlier able to claim a tax deduction for mileage and other expenses that were not reimbursed by their employers. However, with certain new rules and regulations, this rule got suspended, changing the entire mileage deduction rules. Now, it is up to your employer, as he may or may not reimburse you for some job-related travel. But you aren't allowed to claim mileage that your employer doesn't reimburse you for. It is to be noted that you can't claim the deductions for your commuting expenses between your home and your regular place of work.

People who can still claim mileage on taxes are-

* Small business owners or self-employed taxpayers who file Schedule C or Schedule F.

* Other self-employed workers that include independent contractors, such as drivers for rideshare services.

* Certain types of employees like qualified performing artists, reservists in the armed forces, and fee-based government officials.

* People who are traveling for charitable work or for medical appointments.

However, the rules of deductions are different for different persons. If you are self-employed, you still can't deduct mileage if you commute from your home to your primary business, but you can claim a deduction if you are traveling from your business to visit a project site or meet clients.

Final thoughts:

If you live far away from your job location, getting to work can be very expensive for you. Wouldn't it be so nice if you could claim a tax deduction for some or all of the costs associated with commuting to your job? With FlyFin, it is now super easy and absolutely tax-free to travel to and from your work. It is now no longer considered a personal expense. Contact the expert tax team members who are well-versed in all aspects of taxes. They ensure you of accurate tax review and preparation of reports. You can get precise records of your vehicle's trips and routes, along with other vital information that will help you optimize your management.

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