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How to Write-off Your Travel Expenses

Travel is a perfect opportunity to mix business and pleasure. Yet, writing-off travel expenses is one of the most underutilized tax deductions by small business owners today!
If planned properly a trip that includes business could be 100% deductible even if there are some personal benefits included. In fact, even properly planned holiday travel can generate a significant tax deduction as a travel expense.
This can include visiting family or going to special/romantic location around the U.S. or the world while attending a conference or doing other valid activities necessary for your business.
However, in order to claim the travel deduction there are some important rules to follow.
Travel Deduction Rules
There are 5 Steps to follow in order to insure a properly documented tax deduction.

Make sure the travel has a business purpose and it is “ordinary and necessary” for your business
Understand what qualifies as a qualified transportation day and a business travel day
Track and document what is actually deductible
Treat dining and auto separate from travel
Watch out for the traps and pitfalls

What is a valid business purpose 
Making sure your travel has a “business purpose” is critical. Travel expenses are 100% deductible when traveling for business if they are ordinary and necessary for you in order to increase revenue, profit, or build your business in a constructive way.
The trick becomes finding a legitimate, honest and justifiable business reason for the “travel”. Frankly, it’s not too difficult to find a business purpose for travel.
Here are some wonderful reasons for a deductible trip:

Attend a Conference or Workshop. Look at possible workshops in the local area where you are visiting. Tax, legal, business, marketing, website, SEO, customer relationship, or technical training based on your type of business are classes that you should consider taking. At the very least, visit a local real estate or investment club meeting if possible. The training could be fantastic and justify a great write-off, but just make sure there are valid meetings taking place at least four (4) hours a day and meets the rule of a Business Travel Day. (see below)
Hold a Company Annual Meeting. If you have a corporation, this would be considered your Board of Directors Meeting and Shareholders Meeting. If you have an LLC, elect a Board of Advisors to assist the Manager or Managers of the Company. This is an excellent opportunity to discuss the operations of the company over the past year. Profits, losses, acquisitions, new ventures, goal setting…utilize the advice of your board members and make plans for the next year.
Visit a Client. Wherever you are traveling to ask yourself, is there a customer or client in the area? Could you cultivate a new relationship or strengthen a current one? Schedule meetings each day you are traveling, at least for a few hours, and keep notes of what you accomplished along with why the meeting was important.
Visit a Vendor. When traveling, think about if there is a vendor or supplier, sub-contractor, or affiliate you could meet with where grandma or grandpa lives? Could you negotiate new pricing, tour a facility, talk about networking and how you could work more closely together? The tax write-off may even be simply a bonus, when you consider the business you could generate with a strategic meeting that produces more revenue for the business.
Check on a Rental Property. I’ve said it time and time again. At least consider and/or attempt to purchase rentals where you travel. More specifically, could you buy rentals where the extended family live. Have them help manage your properties or you could simply work on them while you are visiting. Sometimes, it’s a great excuse to get out of family functions to have to leave and work on the ‘rental’- just saying.

The list goes on and on as to what might a valid reason for your business; it just doesn’t make sense for any business owner to not have at least some business purpose for every travel experience.
Transportation Days and Business Travel Days
Understanding the difference between transportation days and business travel days is critical.
A transportation or “Travel Day” is the day or days necessary to get where you are going to actually DO business. These Travel Days are different than a Business Travel Day under the tax code, however they are still fully tax deductible. The concept of the Travel Day originated with the “Overnight Rule”. Meaning that a business trip and the deductible travel was necessary because the taxpayer needed a day or night to get where they were going and needed to sleep or rest before the workday or the return trip. IRS Rev. Rul. 63-145 & 75-169. See also United States v. Correll, 389 U.S. 299 (1967).
A Business Travel Day or “Business Day” is the day or days you are conducting business and typically doesn’t include the day you are ‘getting there’ or the Travel Day. The challenge then becomes, what qualifies as a “Business Day”. On the face of it, the rule seems simple:
“If a trip is primarily for business, a taxpayer may fully deduct transportation expenses for travel even if that combines business and personal activities” (emphasis added). IRS Reg. 1.162-2(b)(1). See also Habeeb v. Commissioner, T.C. Memo. 1976-259, aff’d, 559 F.2d 435 (5 Cir. 1977).  
Conversely, the courts have also clearly stated that “no transportation expenses are deductible if the travel is primarily for pleasure, even though the taxpayer engages in some business activities at the destination” (emphasis added). Duncan v. Commissioner, 30 T.C. 386 (1958).
However, what is primarily for business or pleasure mean and what is the tipping point? The IRS has also stated in Regulations that “a ‘business day’ is a day in which, during appropriate business hours, the principal activity of the taxpayer is the pursuit of the taxpayer’s trade or business” (emphasis added). IRS Reg. 1.274-4(d)(2)(iii).

4 hour work day – Over time and due to the subjective nature of the words ‘primarily’ and ‘principle’, the “4 hour or more Work Day Rule” has evolved to provide a safe harbor for taxpayers. Under tax law, the words ‘primarily’ and ‘principle’ mean more than 50%, or the majority of the time in this instance. Moreover, the concept being well recognized that that a full work day in the U.S. is 8 hours, as long as the taxpayer spends the majority of that time (at least 4 hours) doing business, they have satisfied the Business Day requirement. (see U.S. Department of Labor, Wage and Hour Division, Guide to the FSLA.)

Thus, a properly planned 3-day trip may look something like this: Traveling on Tuesday for an important in-person meeting on Wednesday, and traveling back on Thursday. In this instance, all 3 days of travel expenses are 100% deductible. See the diagram below.

A 5-day business trip may look like this and all of the travel expenses for the full 5 days being full deductible.

Weekends and Holidays
Another rule that’s important for business owners to know and understand, is the “Standby Day Rule” that applies to weekends & holidays. This rule essentially means that any weekends, holidays, and other necessary standby days sandwiched between Business Days, are counted as a Business Day themselves. IRS Reg. 1.274-4(d)(2)(v).
However, in order for a taxpayer to qualify for this rule, they must complete the trip within a reasonable time frame (meaning no extra days laying around in the sun), and the Business Day activities over multiple days couldn’t be combined into one particular Business Day. Essentially, you got stuck in that city over the weekend because the meetings or activities needed to take place on both Friday and Monday. Id.
Here is what the Standby Day Rule may look like on a weekend:

Days when your presence is required
When a taxpayer is traveling for business on multiple days, an exception to the 4 hour Work Day Rule is when a business owner’s presence is required. Thus, if a taxpayer is required to stay overnight for an important meeting or presentation the next day, even if it’s not for 4 hours the result is a deductible Travel Business Day. IRS Reg. 1.274-4(d)(2)(ii).
A taxpayer can also count as a Travel Business Day, any day when circumstances beyond their control prevent them from actively pursuing the business purpose of their trip. IRS Reg. 1.274-4(d)(2)(ii).
For Example: A taxpayer is traveling to New York for a business meeting on Wednesday, and arrives in the city the night before on Tuesday. However, a snow storm hits the city and delays the taxpayer’s meeting until Friday. While the taxpayer is stuck in NY going to museums, shows or restaurants that are still open, patiently waiting for the meeting on Friday, the extra days being stranded are deductible Travel Business Days.
What is actually deductible? 
Many new clients’ tax returns come across my desk every year with literally zero travel deductions. Imagine the tax deduction from the travel expenses they could have taken advantage of with proper planning.

Airfare
Hotel and Airbnb
Rental cars, Uber & Lyft
Valet & Taxi
Trains, Tolls, etc.

Essentially, any expense incurred that’s necessary for the business travel is going to be 100% deductible. However, this won’t include speeding or parking tickets, entertainment, and meals will still be limited to 50% (see below)
It is also important to note that the costs of a trip can be pro-rated or allocated if if a trip is a blend of non-deductible personal time and qualified business travel. So if the trip is deemed to be 20% personal, a taxpayer may still be able to take 80% of the travel expenses when calculated properly.
Finally, per diems can also be an option for taxpayers traveling on business. This is the concept that federal per diem rates can be taken as an expense, rather than the actual expense, whichever is higher. The problem is that greater than 5% business owners can’t use the lodging per diems, but are still allowed to use the dining per diem rates. See IRS Publication 1542.
Dining and Auto when traveling 
First, keep in mind that the dining deduction is separate from the travel deduction. Yes, you can write off dining by yourself while you are traveling for business, but it is still limited to 50% of the expense (including tips and drinks).
The dining expense would go on a separate line on the tax return and not be included on the travel line. See my article “Writing-off the Dining Expense” for a variety of strategies and also combining the dining deduction with travel.
Auto expenses during your business travel for a rental car, gas, uber, taxi, etc… are also 100% deductible when traveling for business.
However, if a taxpayer is using their own car while traveling for business, the auto deduction is completely separate from the travel expense. There isn’t a special rule or method to put your auto on the travel deduction line. Any expense for your auto, truck, rv, or trailer would be deducted as an auto deduction. See my other article “The Best Auto Deductions for 2024.
Traps and Pitfalls
A few important considerations to be aware of when deducting your travel:

Cruises. Writing off a cruises is extremely difficult, at least to any beneficial degree. See my other article “How to Write-off the Cost of a Cruise”. (See limits on cruise ships and other forms of “luxury water transportation” IRC Section 274(m)(1).)
Multiple days. When traveling for business multiple days, make sure you are justifying each day with either 4 hours of work, or required meetings that couldn’t be combined into one business day.
Documentation. Keeping receipts (or images of the receipts) and credit card statements are critical in an audit, but when it comes to ‘travel’, keeping a good log in your calendar as to the business you conducted, meetings, people you met with, etc… is even more important. Poor documentation of the ‘business purpose’ for your trip would be a killer when it comes to an audit.
“Shopping” for rental properties. Looking for real estate to purchaser is not a valid business purpose for a trip. If a taxpayer is wanting to write-off travel while researching for rental real estate, they must actually conduct business on the trip. This is defined as making a legitimate offer on a property, visiting a property you already own, or better yet, working on the rental property physically and personally meeting with property managers, contractors, or tenants.
Staying home. Business that could be done at home does not qualify as a deductible Business Travel. Taxpayers will often try to justify the travel because it helps their business, but it needs to be more than that. If a taxpayer just wants to ‘get away’ to study, or watch videos, or work on their own, but the business they’re doing isn’t tied to a reason to be in that geographical area, it’s not going to be deductible.

For Example: A taxpayer feels they are in their most creative state for writing their next book if they are staying at a cottage in the countryside of France. Regrettably, this is not going to be a valid tax write-off to stay in Europe while writing their book. However, if the taxpayer is in the business of writing travel literature, makes money in this business, and travels on a regular basis in order to carry out their valid business purpose, they would be able to write off the ordinary and necessary expenses to travel to France in order to write their book about travel in France.
Concluding Thoughts
With all of these strategies, moderation and balance is the key. Remember, ‘pigs get fat and hogs get slaughtered’. Don’t be too greedy to write-off every trip or travel experience unless your business model and income justify the deduction.
No matter what, at least attempt to do business each day you’re traveling and keep records of what you are doing, who you are meeting with, and how it relates to your business. As usual, the more money you make in your business, the more opportunity we have to be aggressive and take a larger deduction.
In sum, be intentional. Plan for business and pleasure to maximize your travel expenses. Keep your receipts, good records, and discuss the expenses with your Certified Tax Advisor at the end of the year in order to report a well-balanced tax return. Learn how you can become a Certified Tax Advisor.

1099 Rules for Business Owners in 2024

The penalties for not filing 1099s can add up quickly. They vary from $50 to $110 per Form depending on how long past the deadline the company issues them. In fact, if a business intentionally disregards the requirement to provide a correct payee statement, it is subject to a minimum penalty of $550 per statement, with no maximum (More on this below).

Now, that I hopefully have your attention let me break down the basics. I am going to make a couple of recommendations on how you can take care of your 1099 filings.

What if I received a 1099?

Receiving a 1099 is an entirely differently issue and you need to report the income on the proper tax form based on the type of 1099 you received. But it’s not the end of the world, and there are a lot of tax deductions you might be able to take advantage of against that 1099 income.

If you received a 1099 with your side-hustle, or as your main-hustle, see my article: “What to do if I receive a 1099?”.

Who is required to send out 1099s?

As an individual home owner or consumer, you are NOT required to send out a 1099 when you pay someone to serve your individual needs or to perform work at your home for example.

However, if you are a business owner, lender, or manage other people’s money, you are more than likely required to issue a 1099. If you don’t, there are serious penalties (as I mentioned above), and you may even not be entitled to the tax deduction for the expense you incurred. Here are the most common 1099 forms you may encounter:

1099-NEC. This is the most common 1099 form issued and the “general rule” is that business owners will now file Form 1099-NEC for each person or business, whom in the course of the payor’s business, paid at least $600 during the year. This payment would have been for services performed by a person or company who IS NOT the payor’s employee. (Instructions to Form 1099-NEC). (There are special rules and exemptions…and much more on this below)

1099-MISC. This is the form for other payments over $600 that a payer makes in the course of the payer’s business for things such as rent, prizes, and awards, or “other income payments.” Tthese are all reported on Form 1099-MISC.

1099-INT. If you pay interest to investors in a format where you borrow and invest, this is a very important form to file. (This is NOT the 1098 form that indicates the mortgage interest you paid). This is the tax form used to report interest income, paid by all ‘payers’ of interest income to investors or private lenders at year-end (1099-INT Instructions).

1099-DIV. This Form is typically used by large banks and other financial institutions to report dividends and other distributions to taxpayers and to the IRS. If you own and operate a C-Corporation with shareholders, this would be the Form to report payments to those investors (1099-DIV Instructions).

1099-R. Again, this is a form generally used by big banks, trust companies, or brokerages. This Form is used to report the distributions of retirement benefits such as pensions and annuities. Also, if you take distributions from a self-directed IRA or 401k, you would receive some type of Form 1099-R. (1099-R Instructions).

1099 Deadlines in 2024

Business Owner Basics and 1099s 

Who is required to send a Form 1099-NEC? You are required to send Form 1099-NEC to vendors or sub-contractors during the normal course of business you paid more than $600. This includes any individual, partnership, Limited Liability Company (LLC), Limited Partnership (LP), or Estate.

Who are considered Vendors or Sub-Contractors? Essentially, this is a person or company you have paid for services that aren’t an employee. 

If you aren’t sure if your worker is an Employee or Sub-Contractor see my article: “The Difference between Sub-Contractors and Employees”

What are the exceptions? The list is fairly lengthy, but the most common is that you DO NOT need to send a 1099-NEC to:

Vendors operating as S or C-Corporations (you’ll find their status out when you get a W-9 from them..see below)

LLCs or partnerships taxed as an S or C-Corp (again see the W-9 procedure below)

Sellers of merchandise, freight, storage or similar items

Payments of rent to or through real estate agents (typically property managers). However,  you need to issue a 1099 to a landlord you are paying rent (again as a business owner FOR your business, NOT as an individual for your own apartment/home), unless they meet another exception.

Don’t worry about credit card payments and PayPal. The IRS allows taxpayers to exclude from Form 1099-NEC any payments you made by credit card, debit card, gift card, or third-party payment. As long as you confirm that you are indicating that this is a business payment on the 3rd party platform, networks such as PayPal or Venmo are reporting these payments on a Form 1099-K to the recipients…you don’t need to do it for them.

Lawyers get the short end of the stick. Ironically, the government doesn’t trust that lawyers will report all of their income. This means that even if your lawyer is ‘incorporated’, you are still required to send them a Form 1099-NEC. This is if you paid them more than $600 in your business, and are wanting to take a business deduction for paying them.

The procedure. Regrettably, you CANNOT simply go to www.irs.gov and download a bunch of 1099 Forms and send them out to your vendors before the deadline (that was the old method). The new, required, and best method is to file all of your forms electronically, and then mail out the forms to payees by the appropriate deadline. The simplest method is use your accountant handling your payroll and these types of services, OR use a software program/App like www.track1099.com or www.tax1099.com.

Deadline to Payees. The deadline to send out 1099s to payees is January 31st (via mail or email).

Deadline to send the IRS Form 1099-NEC…This is a new rule that started in 2023- Take note!! Now if business owners have 10 or more 1099-NEC forms they need to issue, they MUST file them ELECTRONICALLY with the IRS with form 1096 by January 31st (NOT the end of February- under the old rule, or if you had more than 250 1099-NECs). Also, depending on state law, you may also have to file the 1099-NEC with the state. Sounds like fun…right? (This is where delegating the task to your accountant or using approved software really comes in helpful).

Deadlines to send the IRS all other Form 1099s. For Forms 1099-MISC, 1099-DIV, 1099-INT, and 1099-R, business owners have to compile all of the 1099s and follow the proper method of reporting and the appropriate deadline (see the 1099 Deadline Diagram above)

Don’t forget the States (sorry). There are a number of states that have filing requirements for form 1099s and the 1099-NEC. Currently, these states require you to file a 1099-NEC with them – CA, DE, HI, KS, MA, MT, NJ, OH, OK, OR, PA, RI, VT, and WI. If you’re operating in a State that requires this make sure to confirm the rules and deadlines.

MUST I file Electronically? Yes! Again, IF you have more 10 Form 1099s to file, you MUST file electronically. However, you if you have less than 10 forms to report, you can do it via mail. However, If a taxpayer fails to comply with the proper method, there are serious penalties of up to $100 per form for failure to file electronically. If you establish reasonable cause you will not be subject to the penalty. 

What about foreign workers? If you hire a non-U.S. citizen who performs any work inside the United States, you need to issue them a Form 1099-NEC. If they are non-US citizen AND perform all of their work outside the U.S., you are not required to issue a 1099-NEC. However, it is your responsibility to verify that the worker is indeed a non-U.S. citizen. IF the work is a U.S. citizen, no matter where they do the work, you are required to issue the appropriate form 1099 unless they are exempt. For that purpose, in the future you want to have any foreign worker fill out, sign, and return to you Form W-8BEN.

The W-9 is your “Best Friend”

In this process, it may frustrate some of you that you don’t have all the information you NEED to issue Form 1099-NEC to the payee. One of the smartest procedures a business owner can implement is to request a W-9 from any vendor you expect to pay more than $600 before you pay them.

Getting the W-9 upfront as a normal business practice will give you the vendor’s information you need, including mailing information, any exemption they may fall within, and their tax ID number. For example, the form will also require them to indicate if they are a corporation or not and will save you the headache of sending them a 1099-NEC. You can download a W-9 here.

Suggested Procedure for 2024:

Moving forward this year, make sure to get a Form W-9 from all your vendors before they can get paid. If they want you to pay them ‘under the table’…tell them to move to another country. Then tell you “Thank you for paying taxes and providing roads, essential services, and national defense!!”.

Getting a W-9 from them will ALSO ensure you ultimately get your tax-write off for 2024 and it will certainly save you a lot of headaches next January. For more information on this see the Instructions for the W-9.

What are the Penalties if I miss a Deadline?

As I mentioned above, penalties for not filing a correct 1099 can add up quickly. They vary from $50 to $110 per Form depending on how long past the deadline. Moreover, if the IRS can prove that a business intentionally disregarded the requirement to provide a correct payee statement, they are subject to a minimum penalty of $550 per statement, with no maximum!

Real-life Story

 I literally had a prior client contact me this past year because they chose to file their 1099s on their own and didn’t carefully follow the rules. They inadvertently mailed in the forms and didn’t electronically file (see rules below regarding electronic filing). RESULT- The IRS hit them with $17,000 in penalties and our only hope was to show reasonable cause to get them out of the penalty. ** UPDATE…months later we were able to help them get out of the penalty…but only after a lot of time, accounting and legal fees, and unnecessary stress.

If you are already late in filing your forms…you have a big decision to make. (Think of “The Rock” in the movie ‘The Rundown’ if you haven’t seen it…it’s a classic! :). The ‘Rock’ in the movie would say: “You have two options: Option A or Option B.” (Spoiler alert…Option A is always better).

Option (a) – Suck it up and hurry and file any forms. IF this is your first time being late and you show any reasonable cause, the IRA may waive the penalty and often do. I’m not making any promises here…but it’s fairly common the first-time offenders get more mild treatment….again- generally.

Option (b) – Ignore the issue and hope it goes away. Not good! The IRS will make you pay if your # comes up…and there’s a good chance it will. So…essentially not filing and hoping the IRS or the State doesn’t audit you is not the prudent step to take, and it certainly doesn’t add to good and sound sleep at night.

By the way, the Rock was quick to remind Seann William Scott, “There is no Option C”

In Summary

Consider getting my 2024 Trifecta Planner and Calendar with all of the essential deadlines and signing up for my E-newsletter. This will ensure you won’t miss a single deadline!! Click here for more information.

Don’t ignore the 1099 or the process and get with your CPA to make sure to meet the appropriate deadlines. The maximum penalty can easily exceed $1M for small businesses in 2024 and they WILL charge interest on those penalties too.

The IRS considers you to be a small business if you’ve earned an average of $5 million or less in annual revenue for the past three tax years. There is no limit on the penalties for the intentional disregard to file (and don’t think ignorence is a defense)!

Finally, be careful trusting websites just to save just a few dollars. It can cost you big time if you miss even a small rule or procedure. Most accountants have an affordable procedure to assist in the filing and can be a huge resource. Business owners need to take this filing process seriously and take personal accountability to make sure they complete them.

The Best Auto Deduction Strategies for Business Owners in 2024

The Auto Deduction is the best it’s been in over 30 years. Business owners can write-off a vehicle faster and with even bigger deductions! 
The biggest benefit of the current auto deduction is the strategy of Bonus Depreciation. This strategy includes Trucks, SUVs, RVs, and even Motorcycles. It’s 80% in 2023 and starts to phase down to 60% in 2024 (more on this and how it works below).
The Auto Write-Off isn’t “Travel”
When it comes to the auto write-off, first and foremost remember the auto deduction isn’t part of the travel expense. This is all about expenses for any of YOUR vehicles with some level of business use.
The travel expense includes things such as airfare, hotel, taxi, tolls, parking, uber, Airbnb, and rental cars. See my other article on travel expenses: “Plan Your Travel for a Big Tax Write-Off.” 
Keep in mind that the Auto deduction can include: automobiles, SUVs, Trucks, Motorcycles, RVs, Vans, Delivery vehicles…really anything that doesn’t fly or isn’t on rails.
The Actual Versus Mileage Method
Although, as with most tax deductions, you don’t maximize the auto write-off by simply checking a box. The big question in conversations with our clients is:
“Which strategy is best for me with my car, truck, or SUV…even my RV? Should I use the mileage or actual method; and should I lease or buy new or used?”
Thus, it’s important to understand the TWO MAIN OPTIONS business owners must choose from to document and utilize when writing off the auto expenses. It all starts here!
The Mileage method is a fixed deduction amount (in cents) that you can take for every business mile you drive your vehicle for business. It includes everything you might pay for with your car. For example fuel, repairs, maintenance, auto payments, etc., …except interest on the auto loan (more below).
The Actual Method allows the business owner to take all of the expenses listed above plus depreciation. However, it requires the business owner to keep excellent records. This includes a mileage log…yet the write-offs can be significant (more below).
Seven ‘Rules of Thumb’ to Consider When Writing Off Auto Expenses
The question of Mileage or Actual can get complicated quickly with lots of variables. Helping thousands of clients over the years deduct their auto expenses, our law and accounting firm has discovered some ‘common themes’, or some general rules/guidelines. That can at least be a starting point for a strategic decision.
To make things a little easier for you at the outset of your analysis, I have listed 7 general “Rules of Thumb” below that will help guide you through the decision process.
These ‘Rules of Thumb’ oftentimes point a client in the right direction while they’re out shopping for a car, truck, or SUV. Then a brief consultation before or after the purchase allows us to craft the best strategy to meet their particular circumstance and set of facts.
‘Rules of Thumb’

Rule #1 – If you are going to put on A LOT of business miles, and the car is generally a lower purchase cost then the Mileage Method is typically going to win.
Rule #2 – If you’re NOT going to have a lot of business miles, and it’s an average-cost vehicle used exclusively or primarily for business (meaning 50% business use or more), then you will lean towards the Actual Method because the miles won’t give you the benefit compared to at least some type of depreciation and writing-off fuel, repairs and maintenance.
Rule #3 – If you’re NOT going to have a lot of business miles, and it’s a more expensive car used exclusively or primarily for business (again meaning 50% business use or more), you should consider leasing AND the Actual Method. You’ll have lower monthly payments making a better economic decision and a much better write-off than mileage. 
Rule #4 – If you are going to have low miles and it’s a lower-cost vehicle, but not going to use it  50% or more for your business, you’re going to be stuck with the Mileage Method because you don’t qualify for the Actual Method.
Rule #5 – If you have an extra car in the household, driven by you or other family members for business occasionally, you will typically use the Mileage Method because the business use % will likely be under 50% and that’s your only option. But that’s ok…don’t miss out on the write-off for these other vehicles.
Rule #6 – If you are going to buy a 6,000lb or more SUV or truck, you will generally lean towards the Actual Method for several reasons. First, bonus depreciation is going to be huge. You can immediately deduct up to 60% of the business use value of the vehicle in 2024 (business use % x purchase price). Also, you are going to have a lower MPG pushing up your actual costs with higher total fuel expenses.
Rule #7 – If you have a high MPG (think hybrid or electric), but still have average use and miles, you will lean towards the Mileage Method. The main reasons being: 1) your operating costs are going to be much lower than an average gas vehicle, 2) you don’t have to worry about your business use % since you’re going with mileage, and 3) hopefully you can qualify for the Clean Vehicle Tax Credit on top of your mileage deduction!

** Again, keep in mind these are just general observations and considerations. You need to consider all the facts in your situation and meet with your tax advisor before choosing a method/strategy.
The Mileage Method
On ANY of your vehicles, you can always use mileage as an EXCELLENT method to expense the business use of your vehicle. In 2023 your mileage deductions are as follows:

Business – 67 cents a mile (up 1.5 cents from 2023)
Charity – 14 cents a mile (no change)
Medical and Moving – 21 cents a mile
Moving for qualified active-duty members of the Armed Forces – 21 cents a mile
Personal or Commuting – NO DEDUCTION

In the past, 90% of our clients used the mileage method because it’s SIMPLE, EASY, and a LARGE deduction. Now it’s a whole new ball game!! Keep in mind almost every situation with business-owning taxpayers will vary and several MAJOR factors will impact the analysis.
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The Actual Method
The second method in deducting automobile expenses is by using the actual expenses for the vehicle. When you use this method you CANNOT use mileage. Essentially, you track your fuel, repairs, maintenance, insurance, and tires. Then also “depreciate” the vehicle or a portion of the lease payment if leasing.
Another problem in years past is that because of limits imposed back in the 1980s, a business owner’s depreciation deduction was ridiculously low. For example, if you bought a $40,000 car and drove it 100% for business, your maximum auto deductions for the first five years would only be $15,060. To fully depreciate the car would take 19 years!! Are you kidding me?!!
Now with the Tax Cuts and Jobs Act we have Two INCREDIBLE changes that benefit the small business owner:

Higher annual depreciation limits, AND
Bonus depreciation

HIGHER Deprecation –
Under the NEW LAW, the limits are dramatically increased, whether it’s new or used. In fact, you can convert a personal car to “business” and take the same depreciation amounts (you don’t have to buy a new or used car to start depreciation and actual expenses). This is also assuming you don’t use the mileage method…something I analyze more fully below. The 2023 Annual Depreciation Limits for autos under 6,000 lbs. are:

Year 1 – $12,200 ($20,200 with Bonus depreciation- see below)
Year 2 – $19,500 
Year 3 – $11,700
Year 4, and each subsequent year – $6,960
(The IRS will release 2024 #s mid-year) 

When you buy that $40,000 car in 2018 through the end of 2023 (compare the example above), you can write off 79% of the car in the first 2 years, PLUS: fuel, repairs, maintenance, etc… That’s well over 80,000 in miles if you were to use the mileage method!! Depending on Fuel, Repairs, and Maintenance that is an auto deduction of more than $30,000! 
BONUS Depreciation –
Also, under the new law, we get a perk if we go out and buy a new OR USED car. That’s right. It doesn’t have to be ‘brand’ new either… just new to you. This ‘Bonus’ is to stimulate the economy. The bonus depreciation is $8,000 and comes off the top! Here’s the math:

$40,000 vehicle
-$8,000 bonus depreciation
$32,000 basis for standard deprecation, which will NOW BE FULLY depreciated in the first 3 years!

What auto deduction method is best for You – Actual or Mileage? This is where it gets tricky. There are lots of issues to consider:

The miles per gallon (MPG) on the vehicle
Bonus depreciation if a new purchase
Total repairs or expected repairs and maintenance
How many miles you expect to put on the vehicle
and of course, HOW MUCH will this car cost

Leased Vehicles
Leasing is a phenomenal auto deduction strategy, but not without its drawbacks. The tax benefits are phenomenal. You can again take all the actual expenses, including the lease payment (based on your business use percentage). Also save on the cost of a luxury car when monthly payments may be cheaper when leasing.

The Drawback isn’t a surprise for those that have leased a vehicle before – The mileage limitations by the manufacturer/dealer can really kill you financially at the end of the Lease. For example, if you are allowed 15,000 miles annually under the Lease, when you turn in the vehicle at the end of the leasing period, you have to pay for every mile you went over—buckle up!!
The Benefit of Leasing is for those that want a second car for those nicer appointments – You aren’t going to be blowing a bunch of miles in this situation and you can have a more luxurious vehicle to take clients and customers out to lunch in and make sales calls. It’s critical you have a separate vehicle for personal or business use where you can burn through the miles, and NOT on the leased vehicle. 

SPECIAL NOTE—Tracking Mileage
No matter what method you choose, ALWAYS track your mileage (estimate it as best as you honestly and ethically can). This is because your total business miles will determine your ‘business use percentage’ for the actual method AND of course your mileage deduction if you are using the mileage method.
It can be a written record, but the best strategy is to use an App on your phone that can track your mileage with a GPS tracking system. I recommend using QuickBooks Mobile (They have an awesome mileage tracking feature and if you click that link you get 30% OFF your first 6 Months!) 
Create an Auto Deduction Strategy
In order to make a decision on which method is best for you and YOUR situation, I suggest two things:

Create a Spreadsheet to analyze the situation. It doesn’t have to be complex either. Establish columns to compare the mileage, purchase, and leasing options. Then the rows can be different types of vehicles and different scenarios. You can do most of the research and calculations by simply pulling information off the web. This will save you time and money rather to do the basic leg work. It will also save the ‘heavy lifting” for your tax advisor. This brings me to #2…
Next, go over the Spreadsheet with your accountant/tax preparer and fine-tune the analysis!! Oftentimes your tax advisor is going to be able to review the best strategy by looking at the overall ‘picture’ of your tax return and if the strategy makes sense. Regrettably, the best write-off can be ‘suspended’ into the future based on the overall income of your business or businesses. 

Simply thinking through your options AND realizing that if you are going to spend THOUSANDS OF DOLLARS on a vehicle, it’s extremely worthwhile to take some time to analyze the various options for getting the best tax deduction. Tracking mileage is a simple, but significant auto deduction that is often missed simply because it takes a little added effort.