Deducting Business Mileage Expenses Versus Fuel Expenses

This question gets asked more often than not, and many businesses don’t understand what or how they should be tracking this particular expense, so hopefully this brings some clarity.

For 2019, the standard mileage rate 58 cents per mile.  This means that for every mile your personal vehicle has been used for business purposes, this is how much you have as a tax deduction for your business’ tax year.  You have a starting point from your “tax home,” to the places for which you perform work for your business, i.e. visiting clients, going to the bank, going to the post office, picking up supplies, visiting clients, etc. and going back to your tax home.  If this seems like it’s a lot of work, then Mile IQ is a great alternative that has gotten strong reviews and works well in tracking where your vehicle goes at all times.

A lot of clients have said this is too much trouble, too much detail to enter, etc. and that’s understandable.  However, I always run the numbers and explain how this works to someone’s advantage if they drive significant amounts of miles for their business.

$2.25 per gallon (I’m using Houston’s average gas price)

25 miles per gallon (mileage varies depending upon make and model of course)

$2.25 for one gallon of fuel, divided by 25 miles, equals 9 cents per mile you benefit from purchasing that one gallon of fuel; however, that benefit will increase later if you use the actual expenses method*

58 cents per mile multiplied by 25 miles, equals $14.50

If you use your personal vehicle and want to take the actual expenses method deduction, then you must document the percentage of it that’s used for business versus personal, and for audit defense purposes, you’ll still need to document the total miles driven for the business tax year.  From there you’ll need to develop your percentage of what was business.  Therefore, if you drove your personal vehicle 40% of the time for business, then you are able to deduct 40% of auto repairs, auto insurance, auto fuel, registration fees, as well as depreciation on the vehicle.

Key Points

*the tax home as defined by the IRS, is the “regular place of business” which may or may not be your family home; this DOES NOT include commuting miles between your home and if you have a separate physical business location

*if you use the actual expenses method, if you go back to fuel being your 9 cents per mile in the example above, in order to benefit from not doing a standard mileage deduction, you would therefore need to get an additional 49 cents per mile from your fuel, registration fees, repairs, etc.

*documentation is key, and “just guessing” won’t necessarily pass an audit so you need to consider what option is best

*finally, a trick I learned a long time ago, is to get your oil changed for the vehicle you’re doing a deduction on at the end or the beginning of each year; this is one of the easiest ways of having someone outside of your business to document your mileage as an added layer of documentation

Dwayne J. Briscoe