Who Should Use Standard Mileage Rate Method Vs Actual Cost Method

Are you making the most out of every return opportunity when you file taxes for your dental practice? Many details are often overlooked - which means many dentists are leaving money on the table at the end of the fiscal year. One way to maximize your return, especially if you have a long commute to the office, is to ensure that you’re calculating the cost of using your vehicle for your business. 

The IRS offers two ways to calculate this figure: 

1. The Actual Expenses method or 

2. Standard Mileage method. 

Which one is “better”? Here’s the short answer: It depends. Each method has its advantages and disadvantages, and they often produce vastly different results. The best way to decide which method is best for your situation is to calculate your expenses both ways, then choose the one that yields the larger deduction and greater tax benefit to you.

The Actual Expenses Method

As the name suggests, the Actual Expenses method requires you to add up all the money actually spent in the operation of your vehicle. This includes:

• Lease payments
• Auto insurance
• Gasoline
• Maintenance (such as oil changes, brake pad replacements, tire rotations)
• New tire purchases
• Title, licensing, and registration fees (not deductible in all states; check with TurboTax to see if this expense is deductible in your state)
• Vehicle depreciation (use a depreciation table to calculate the amount, and then deduct only the portion that applies to the business use of your vehicle)
  

Once your expenses are added, multiply this figure by the percentage of the vehicle’s business use.

For example, if half the miles you drive are for business and half are for personal use, you will multiply your total vehicle expenses by 50% to arrive at the business portion (e.g. $9,500 total expenses x .50 business use = $4,750 business expenses).

This method requires you to keep receipts and keep track of said expenses. For this reason, many dentists find that the Standard Mileage method is easier and less time-consuming.

The Standard Mileage Method

The Standard Mileage method is a much simpler way of calculating the business use of your car. It does not require you to track individual purchases and save receipts. Instead, you simply keep track of your mileage for the tax year. (Pro tip: take a photo of your odometer on New Year’s Day and save it, so you can always see where your mileage stood at the beginning of the tax year.)

As with other tax deductions, you must determine the percentage of your mileage that applies to your business.

If half the miles you drive are for business and half are for personal use, you will multiply your total mileage by 50% to arrive at the business portion (e.g. 10,000 miles x .50 business use = 5,000 business miles).

Once you have determined your business mileage for the year, simply multiply that figure by the Standard Mileage rate.

Which Method Works Best for You?

The best way to determine which method is right for you is to take the time to calculate both. However, this overview of automobile deductions is simplified and the details of your practice and your travel may change things. To ensure that you are getting the biggest possible return and filing correctly, give our experts a call. We’ll help you maximize your return and make your filing process as smooth as possible.