As a studio owner, are you getting your biggest bang for your buck on your mileage? Let’s talk about what needs to happen with auto mileage and how you can track your car expenses and what it’ll do for you.
First, I won’t get into the long spiel about standard mileage rate versus actual expenses. You can have a situation where you can deduct a portion of the actual expenses of the vehicle, but for most studio owners, the standard mileage rate is easier, less hassle, and gives you the biggest deduction.
If you use your business or your personal vehicle for business purposes, you are entitled to deduct the standard mileage for that. In order to deduct that standard mileage though, you must have a mileage log that meets the credentials of the IRS. They tell you what you need.
I’m gonna make it super easy for you. You don’t have to have a little notebook in your car and remember to write it down every time. You should probably just use Mile IQ. It is one of the best mileage products. We use it in our practice. I use it personally—we use it a lot.
It is about 59 or $69 a year, somewhere in that range. It’ll pay for itself immediately. Put that on your phone, it will run in the background and it will track everywhere you drive. And all you need to do is go in and do the Tinder kind of thing where you say, this one was business and this one was personal swipe one or the other, and you’ll be keeping a mileage log.
It can export the report that would be required for the IRS at the end of each month, and so that for each year as well.
I strongly recommend that you track this by the month. If you’re working with us, we will require you to track it by the month so that your financial statements will be up to date each month, and you won’t have to look at this big giant overburdening task of figuring out where you went last January when you’re into the next year and you can’t remember.
So do it timely; Do it each month. Keep that up to date.
Well, you’re gonna need to know for your taxes the total miles you put on the vehicle for the year. So remember, snap an odometer picture of January 1st each year to make sure you know, and you’ll need to know the total number of business miles you drove. Your mileage log will help you accommodate that. You will get for 2023, 65 and a half cents per mile that you drive.
So if you drove a thousand miles, that’s a $650 and 50 cent deduction on your taxes. That will save you a good bit of money. So you definitely want to do this.
If we’re talking about 2022, it was a weird year, they split it and changed the rate mid-year, it averaged about 60 and a half cents. That number usually goes up each year. If the price of gasoline comes down significantly, it has come down.
That is set by the IRS each year, and you’ll usually know that around October each year, November.
How do I know which ones are business and which ones are personal?
If you leave your house and you drive to the studio, that is considered commuting miles. There’s one exception, if you qualify to have a home office, meaning you have a place in your home that is exclusively used for business and that is where you do the majority of your administrative work, then your mileage from your home office to the studio is deductible.
So let’s assume again that it is not a home office situation. Your mileage to and from the studio, first trip in the morning and last trip at night are not deductible. The things you do in between if they’re for business are deductible.
Let’s say in your average day you went to the bank, you went over a hobby lobby and got some supplies and you had to go meet with a colleague that was an hour away for lunch to discuss studio business. All those things are deductible.
Now, let’s say that you left the studio to go get your haircut and then you went back to the studio. That is not deductible.
Keep real clear as to if it’s business or personal mileage. At the end of each month, we’ll do a little entry to pick up your mileage, show it like it was an expense for the business.
And if you’re not going to issue a payment to yourself for the mileage as a reimbursement, you’ll just post it against your draws or your distributions from the business to lower those.
Make sure you keep up with those. Keep up with going out to get supplies, going to the bank, going to run errands that relate to the business. If you’re delivering things, going to an event, those things are deductible.
If you’re buying gasoline, let’s say you get 20 miles of the gallon, you’re not going to get anywhere near 65 and a half cents a mile if you think you’re just going to deduct your gasoline. Gasoline is part of actual cost. You’d have have to be using the actual method, which means a lot of things over 50% business use in your vehicle, way more tracking that you have to do to do that method and in most cases, for studio owners, it is not as good of a deduction.
Pay for your gasoline, pay for your insurance, your car payments, pay those all out of your personal funds and take the mileage rate for your deduction. It usually comes out far and ahead.
If you have an odd situation, talk to your accountant about which way is better for you. But in most cases, you should be using the standard mileage allowance.
I hope this helps clear up how you use a business vehicle to get your mileage, or I’m sorry, use a personal vehicle to get reimbursed for your business mileage.
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Donna Bordeaux, CPA with PYOPAccounting.com
Creativity and CPAs don’t generally go together. Most people think of CPAs as nerdy accountants who can’t talk with people. Well, it’s time to break that stereotype. Lively, friendly, and knowledgeable can be a part of your relationship with your CPA, as demonstrated by Donna and Chad Bordeaux. They have over 50 years of combined experience as entrepreneurial CPAs. They’ve owned businesses and helped business owners exceed their wildest dreams. They have been able to help businesses earn many times more profit than the average business in the same industry and are passionate about helping industries that help families build great memories.