Do Not Use Actual Expense Deductions Until You Read This!

Do Not Use Actual Expense Deductions Until You Read This!
Photo by Jenny Ueberberg / Unsplash

Business travelers in the USA have two possibilities for deducting expenses. Both methods involve keeping accurate records, but one may be superior to the other based on your situation. These methods are the Actual Expense and Standard Mileage Rate methods.

The Actual Expense Method

This method involves the recording of all car related expenses, which can then be deducted from your income tax. While allowing for the deduction of all vehicle-related expenses, it also requires meticulous records about the amount of money spent on the vehicle. When using this method, it's important to keep in mind the kinds of expenses, which may be deductible, including:

  • Gas and oil
  • Insurance
  • Depreciation
  • Licenses
  • Lease
  • Registration fees
  • Repairs
  • Garage rent
  • Tires
  • Tolls
  • Parking fees

The Standard Mileage Rate Method

The standard mileage rate lets you deduct expenses based on the miles driven on business in a given year. It's easy to use, convenient and an overall much better deal for your wallet. In the past, the hassle of recording every single trip you took on paper deterred a high number of people from using this method. However, nowadays it is far easier to track mileage automatically using apps like Psngr.

One thing to note, is that if you use the standard mileage rate for a year, you cannot deduct your actual car expenses for that year. These expenses are factored into the rate's value[1:1].

Enter: Automatic Mileage Tracking

Passenger for iOS and Android is your trusted friend in mileage tracking. It relieves you from the hassle of logging every trip you take and lets you focus on business. At the end of the day, you will have accumulated tax deductions without ever taking a look at your phone.

Which Method Suits You Better?

Generally, if you drive a high amount of business miles (more than 15,000 miles / year) or if you drive a small or mid-size car, you are better off with the Standard Mileage Rate. If you are below, you should record your expenses and compare the results at tax year's end.

Note: in certain cases you cannot use the Standard Mileage Rate, see IRS publication 463 for further details.