This post is for the independent contractor and the small business owners. Your shiny new vehicle is one of your largest available expenses and one of the best ways to offset your income.
The purpose behind offsetting one’s income is to lower the value of what is being taxed (one’s income in this case) in order to reduce the overall tax burden.
Less taxable income = less taxes to pay.
There are two ways one can a deduction through their vehicle expenses: Standard Mileage or Actual Expenses.
Standard Mileage Deduction
Standard Mileage is a flat rate of $0.575 per mile in 2020. This flat rate takes into account the fuel cost, maintenance, repair expenses, car insurance, and depreciation.
Actual Expenses
Actual expenses takes all of the expenses listed above but at the actual rate paid. This option requires more record keeping than standard mileage.
You as the independent contractor or small business owner can choose between either option based on your needs and/or whichever would provide you with a greater tax deduction.
A Note On Standard Mileage:
If taking the Standard Mileage deduction, you must take it in the first year of your using the vehicle for business.
You must also adhere to the following:
Talk to a Sinn Accountant today about which deduction would work better for you!
