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Here's Why Driving a Small Car Gets Money in Your Pocket

It isn't exactly breaking news: driving a compact car, or even a small sedan is a lot cheaper than a large sedan or SUV. This is especially true if you are using this car on business, thanks to IRS standard mileage rate. Here's why:

A recent report by AAA shows that the average cost of operating a small sedan is 37% cheaper than operating a large sedan or SUV.

The report takes into account recent gas prices, insurance, depreciation, finance charges, maintenance, license and tires. For almost all of these operational components, you're better off with a smaller rather than a larger car.

If you're driving your car on business, your mileage is tax deductible at a fixed rate of 57.5 cents per mile, based on 2015 IRS standard mileage rate, and regardless of what type of car your driving.

If you're driving a compact car, your actual cost per-mile is 12-20 cents cheaper than what you can deduct as business expense.

Let's do the math:

  • 15,000 miles per year (average mileage if you're 20-54 years old)
  • 75% of that on business
  • 20 cents "margin" (assuming actual per-mile cost of 37.5 cents, while IRS rate is 57.5)

15000 * 0.75 * 0.2 = $2,250

That's $2,250 in your pocket without actually doing any work.

Don't use all that extra cash to buy a bigger car though ;-)

Rotem Rubnov

Rotem Rubnov

Software developer, entrepreneur, managing director at 100grams (https://100grams.io), founder of PSNGR (https://psngr.co), father, athletics enthusiast.

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