Mileage vs receipts

[Chuckv18]

I have an LLC and we travel to various craft shows around America, do we keep gas receipts or track mileage? What if we go off route for a little fun that’s not business related? 

[shirleyh88]

Hello Chucv18!

Thank you for your questions. To use the standard mileage rate (standard deduction) for your car that is used for business, you must choose to use it in the first year the car is available for business use.  However, if this is your second or third year of using the vehicle for business, you have the option of using the standard deduction or actual expenses (whichever produces a higher deduction for you). Mileage always needs to be tracked in order to get the correct business use percentage. If you choose to use the actual expenses, then you would need to keep track of all of your expenses related to your vehicle (such as gas receipts, repairs & maintenance, parking expenses, tolls paid, etc.)

Please refer to the article below for reference: 

https://turbotax.intuit.com/tax-tips/self-employment-taxes/standard-mileage-vs-actual-expenses-getti... 

Please let me know if this answers your questions, or if I can be of further assistance.

Thank you!

Shirleyh88

[Chuckv18]

Thank you so much for that response and it confirms what a friend said but as the adage goes it’s best to talk to an expert.  However, Correct me if I’m wrong but I still use my business debit card meaning income from the business to purchase the gas I use but only the standard rate(.55/mile)  is deducted from my federal filings?

[JandKit]

Hi Chuckv18!

If this is the FIRST year of use of your vehicle, you have two choices.:

1. You can take the total BUSINESS miles driven for the year or

2. You can take ACTUAL EXPENSES such as gas, oil, car insurance, repairs, etc

If you have used the vehicle for business for more than one year, you are governed by the choice made in the first year of use. In other words, If you chose the mileage deduction in the first year, you may continue to take mileage each year. If you chose actual expenses in the first year, you MUST continue taking actual expenses each year there after.

[shirleyh88]

Hello Chuckv18!

Are you sure $0.55/mile was deducted on your 2020 return for the business miles you drove? The 2020 standard mileage rate per the Internal Revenue Service (IRS) is $0.575 per mile, and the 2021 rate is $0.56/mile.  Please refer to the link below: 

https://www.irs.gov/newsroom/irs-issues-standard-mileage-rates-for-2020 

https://www.irs.gov/newsroom/irs-issues-standard-mileage-rates-for-2021 

Please let me know if this answers your questions, or if I can be of further assistance.

Thank you!

Shirleyh88

[Chuckv18]

Thank you, I was actually just using that as a reference but thank you for that clarification! I noticed that the other expert stated I have to decide the first year and then every year after do the same as I did the first year. I am wondering why the discrepancy?

[Chuckv18]

Thank you for taking the time to answer my question. I did notice a discrepancy between your response and the other experts response time left a bit confused. This year we’ve already had insurance of course, lots of mileage, oil changes, and a tire blowout. I imagine the are actual expenses could add up higher than the standard deduction pretty quickly with a traveling arts and craftVendor business like we have and I don’t want to get locked into the wrong thing for years to come. Also, what if we buy a new car next year does this whole thing reset? Is it based on the car or the business?

[shirleyh88]

Hello Chuckv18!

Thank you for your follow-up questions. You are not required to use the same deduction method in the second year as you did in the first year. If you choose to use the standard mileage method, you must use this method in the first year the car is available for use in your business. Then, in the second or third year and going forward, you may choose whichever method gives you a higher deduction which will in turn give you a greater tax benefit.  After the first year, it is best for you to calculate the deduction using both methods in order to see which method is more beneficial for you. 

Please refer to the IRS article below for reference regarding using the standard mileage method or the actual expenses method. 

https://www.irs.gov/taxtopics/tc510 

When you purchase a new car next year, you will go through the same process again as you did with the first car - please refer to the explanation above.

This deduction method is based on the usage of the car for the business. 

Please let me know if this answers your questions, or if I can be of further assistance.

Thank you!

Shirleyh88