Now, assume you drove 40,000 miles in the year 2016, and 30,000 of those miles were for business. Here’s how the Actual Expenses method would work in this instance:
- Gas: $4,000
- Depreciation: $3,160
- Insurance: $1,500
- Repairs: $1,200
- Oil: $190
- Tires: $500
- Washes: $750
If you add these up, your total expenses come out to $11,300. Since you used your car for business 75% of the time, you would multiply your total expenses by 75% to get your actual deduction, which comes out to $8,475.
If you use the Standard Method with these same numbers, you would multiply the number of miles driven for business (30,000) by the standard mileage rate (54 cents per mile), which comes out to $16,200.
In this particular example, you’ll save the most on taxes by using the Standard Mileage method.
As you can see, the method you choose to calculate your car-related expenses can translate to either saving on taxes or adding to your tax burden. Accounting software like QuickBooks Self-Employed can help you keep track of mileage, automate your deductions and calculate both methods, allowing you to decide which method works best for you. And an accountant can also help if you’re having trouble with the decision. For more tax-time tips, see our complete guide to taxes for the self-employed, as well as our guide to deductions and expenses.
This article is intended to provide you with general information; it does not constitute any type of tax advice. The views expressed in this article are those of the author alone, and do not represent the opinions of Lyft, Uber or any employee thereof. For recommendations related to your overall financial and tax status, consult a certified tax professional in your jurisdiction.