If you’re putting a lot of miles on your car for business, you can save money by deducting those expenses. There are two main ways to deduct your auto expenses.
Auto Expense Deduction Methods
Actual Expense Method First, take the total of all your car-related expenses. This includes gasoline, oil, repairs, insurance, and anything else. Next, divide your total business miles by your total miles driven (including personal miles). Apply this ratio to your total expenses. The result is the amount you can deduct for business use.
Standard Mileage Rate Method The easier option is to take the standard deduction rate. As of 2017, this rate is 53.5 cents per mile. This rate changes a bit each year.
Keeping a Mileage Log
You need to keep a detailed log of your mileage. Some people track this in Excel or write it down in a logbook. An app like MileIQ can make this easier. It tracks all your drives and lets you categorize them as personal or business with a simple swipe. This log is essential if you’re ever audited by the IRS.
Other Deductible Business Expenses
Running a wholesale business comes with other deductible expenses. This includes interest and fees from transaction funding and any costs related to double-closing deals.
Home Office Deductions
If you have a dedicated space in your home for business, you can also claim a home office deduction.
Actual Expense Method Calculate your total home-related expenses, such as mortgage interest, property taxes, repairs, and maintenance. Divide the square footage of your home office by your total home square footage. Apply this ratio to your total expenses to find your deductible amount.
Simplified Method Alternatively, you can use the standard deduction of $5 per square foot, up to a maximum of 300 square feet. This provides a cap of $1,500.
Additional Professional Fees
Don’t forget to deduct professional fees. These include attorney fees, CPA fees, and payments to bird dogs (people who find properties for you). You can also deduct a portion of your phone bill that relates to your business.
Maximizing your tax deductions can significantly impact your business’s bottom line. By carefully tracking and deducting your auto expenses, whether through the actual expense method or the standard mileage rate, you can save substantial amounts. Additionally, understanding and utilizing home office deductions, and accounting for other business-related expenses, such as professional fees, can further reduce your taxable income.
Always maintain detailed records, and consider using tools like MileIQ to streamline the process. Properly managing your deductions ensures you take full advantage of the tax benefits available to your business, leading to more efficient financial management and potential savings.
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