Let’s face it. We all want to save more on taxes. Now’s the time to learn how to maximize your tax savings by understanding how to take the mileage deduction as a business owner.

Mileage Deduction as a Business Owner

As a digital nomad, your lifestyle likely involves a significant amount of travel—whether it’s meeting clients, attending business events, or other business-related travel. Fortunately, the IRS provides ways for you to take the mileage deduction, potentially reducing your taxable income and maximizing your tax savings. Here’s a comprehensive guide on how to take mileage deduction as a business owner legally.

Understanding Your Options

When it comes to deducting vehicle expenses for business purposes, taxpayers can choose between two primary methods: the standard mileage deduction and actual expenses.

Remember that any mileage that you deduct MUST be a business expense. This includes going to meet with a client, driving to buy business supplies, attending a conference or event related to your work, etc. However, commuting to a co-working space or moving your RV to a new location as part of your personal lifestyle choice do NOT count as business expenses.

Standard Mileage Deduction:

The standard mileage deduction method offers simplicity and ease of calculation. To use the standard mileage deduction you must:

• Track Both Business AND Personal Miles: Begin by maintaining a detailed log of all miles driven specifically for business purposes. This includes trips to meet clients, attend conferences, or conduct site visits. I recommend recording your odometer on Jan 1. That way you have the start and end mileage for the year. That gives you your total mileage. When it comes to reporting this on your tax return, you’ll need the business use percentage. This is calculated by knowing both your business and personal mileage.
• IRS Standard Mileage Rate: For the tax year 2024, the IRS has set the standard mileage rate at 67 cents per mile for business use. This rate covers various costs associated with owning and operating a vehicle, such as depreciation, insurance, repairs, gas, and more. The range changes each year.
• Calculation: Multiply the total number of business miles driven by the standard mileage rate to determine your deduction. For instance, if you drove 10,000 miles for business purposes during the year, your deduction would amount to $6,700 (10,000 miles * $0.67).
• Advantages: The standard mileage deduction method is straightforward and requires less meticulous record-keeping compared to the actual expense method. It often results in a higher deduction for many taxpayers who drive a lot of miles for business.

Actual Expenses:

Choosing to deduct actual expenses requires more detailed record-keeping but may yield a higher deduction under certain circumstances:

• Track Both Business AND Personal Miles: The same as above, maintain an accurate log of all business-related miles driven throughout the year. This includes trips to meet clients, attend conferences, or conduct site visits. I recommend recording your odometer on Jan 1. That way you have the start and end mileage for the year. That gives you your total mileage. When it comes to reporting this on your tax return, you’ll need the business use percentage. This is calculated by knowing both your business and personal mileage.
• Keep Receipts and Records: Unlike the standard mileage deduction, this method requires you to keep receipts and records for ALL vehicle-related expenses. These include gas, oil changes, repairs, insurance premiums, registration fees, lease payments (if applicable), and depreciation.
• Calculation: Add up all actual expenses related to the vehicle for the tax year. The deduction is based on the proportion of business use versus personal use of the vehicle, which requires meticulous documentation.
• Advantages: If you have significant vehicle-related expenses beyond what the standard mileage rate covers, such as high repair costs or substantial depreciation, the actual expenses method may result in a larger deduction. I rarely see this but it’s possible.

Practical Tips for Digital Nomads

Navigating the complexities of vehicle expense deductions can be simplified with these practical tips:

• Maintain a Detailed Mileage Log: Whether you opt for the standard mileage deduction or actual expenses method, keeping a meticulous mileage log is crucial. Use apps or software designed for mileage tracking to make this process more manageable.
• Record your odometer on Jan 1. That way you have the start and end mileage for the year. That gives you your total mileage. When it comes to reporting this on your tax return, you’ll need the business use percentage. This is calculated by knowing both your business and personal mileage.
• Organize Your Receipts: For those choosing the actual expense method, organize receipts and records throughout the year. Don’t wait until tax time to gather this data. It’s too easy to lose receipts and forget about expenses. Digital copies are acceptable, so consider using cloud storage or accounting software to store and categorize your receipts.
• Consult a Tax Professional: Tax laws and deductions can be complex and subject to change. Consulting with a qualified tax professional ensures you understand your eligibility for deductions, comply with IRS regulations, and maximize your tax savings.

Conclusion

As a digital nomad, taking the mileage deduction as a business owner can help reduce your tax liability. By choosing the right deduction method for you —whether it’s the standard mileage rate or actual expenses—and maintaining meticulous records, you can ensure you’re taking full advantage of available tax deductions. Remember, each method has its advantages, so it’s essential to evaluate your specific circumstances and consult with a tax professional to optimize your tax strategy effectively.

Taking proactive steps to track your business miles, organize receipts, and seek expert advice will not only simplify tax season but also potentially save you money in the long run. Start implementing this tax-saving strategy today to maximize your tax savings as a digital nomad!