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Actual Expense vs. Standard Mileage in Denver Tax Preparation

December 6, 2017

One of the most common deductions associated within a tax return is the company and personal use vehicle. Many small business owners and thanks to new ridesharing apps and services like Uber and Lyft, vehicles are commonly being used for both individual personal functions with business related circumstances.

Individuals who fall into this category often wonder what the tax implications are associated with their driving. Since they use the automobile for both work and play, how does it need to be addressed on the income tax return at the end of the year and what should they be keeping track of in order to prepare.

There are two standard forms of answering each of these questions and any others associated with personal and business use vehicles. First, a taxpayer will be better off tracking both throughout the course of a calendar year and then determining which method will provide the better deduction at year’s end, instead of opting for one over the other.

Since the two are somewhat related, some occurrences can be utilized in both cases, but one does provide an easier method of calculation than the other. These two methods used to determine the tax implications of a personal and business used automobile are the actual expense method and standard mileage deduction.

Actual Expense

This method involves keeping many receipts throughout the tax year associated with almost any and everything related to the automobile in question. Gas, insurance, oil changes, and tire replacement or repair payments must all be kept. While these are the main subjects in relation to actual expenses, other factors like car washes and any repair work can also be counted. If the vehicle is being leased, these payments may also be considered as well as depreciation for automobile owners.

These amounts are then added and divided by the amount of time a car was in business use. For example, if the yearly operating expenses equal $12,000 and the vehicle was used half of the time for personal means and half for business, the total amount included for business expense purposes would be $6,000.

While this method requires an inordinate amount of paperwork, it can be more beneficial depending on your vehicle use and driving style.


The other method and arguably easier, or at least less time consuming, is to keep actual mileage tabs used for business purposes. Instead of having to keep up with tons of fuel receipts and maintenance bills, owners/operators use only the number of miles they have driven and multiply by the standard mileage rates for business administered by the Internal Revenue Service (IRS).

Compared with the actual expense model above, this user would record their mileage at the beginning and end of the calendar year and then apply the percentage of business or work related miles to the total. Actual miles should be kept for an even more reliable and potentially beneficial record.

If the vehicle moves 12,000 miles in a calendar year and half are associated with business, the calculation would be: 12,000 / 2 = 6,000 x IRS rate (0.54) = $3,240 for the standard mileage deduction.

Thus, the above method with actual operating expenses would provide a bigger deduction for tax purposes if both scenarios are associated with the same automobile. Keeping tabs on both throughout the year will allow you to have the best results when filling out your taxes and preparing the return.

The experts at Bloch, Rothman, and Associates will be happy to help you determine which deduction would be right in your situation and answer any questions regarding individual or business income taxes while assisting with a variety of bookkeeping options. In cases where the taxpayers are selected for an audit, it is recommended that they enlist the services of a professional tax service before any information is handed over to the IRS auditor.

A full detailed review of your tax situation can be completed in addition to resolution issues and estate compilations. All services will be completed in a timely manner, depending on your restrictions and possible tax deadlines. Whether you need a simple explanation on a random tax form, are in need of representation, or would like help in a variety of other services our tax experts are ready and willing to assist. Call 303-321-7160 or contact us for your initial free no obligation consultation.