How to Calculate Mileage for Business

Whether you work for yourself or for a corporate entity, if your business takes you out on the road often, then you could be losing out on a lot of your own personal money. To prevent this from happening, you can read this article to learn how to calculate mileage for business.

Two Ways to Calculate Mileage for Business

Business automobile expenses are traditionally calculated in two different ways. The first calculation is made based on the standard mileage method. This method just multiplies your total number of miles traveled for specific business purposes by a per mile rate predetermined by your local government (Note: this rate changes every year to account for inflation.)
 
The other method of calculating mileage for business is referred to as the actual expenses method. This method figures out your business expense by multiplying your total auto expenses by the percent of use that was directly related to business matters, adding that amount for depreciation of the business portion of the cost of the auto.
 
What comes as extra good news is that you can add the business portion of auto finance charges, business tolls and parking fees to the total using either one of these mileage calculation methods.

Hopefully this example will help clarify the matter:

Let’s say that Tad bought a $20,000 vehicle approximately four years ago. Let’s say that this year he traveled 6,000 business miles out of a grand total of 10,000 miles. Let’s also assume that his total cost of maintaining and keeping the vehicle in working order totaled $4,500, which includes $500 in finance charges. Let’s also say that his business trips included a total of $150 in tolls and parking.

These are the two methods of how to calculate mileage for business for Tad:

The standard mileage method:

Annual business miles traveled are multiplied by the per mile rate:

Assuming the rate was 48.5 cents per mile (Again, make sure you check for the year’s current rate.)

6,000 business miles times 48.5 cents per mile totals $2,910
60 percent of finance charges of $500 totals $300
Tolls and parking fees total $150
This creates a total expense of $3,360

Using the actual method of calculating mileage for business:

Business miles for the year are divided by total mileage for the year to arrive at a percentage of business use.

Business miles totals 6,000
Overall miles totals 10,000
This means that business use registers as 60 percent

The overall vehicle expenses are then multiplied by the business use percentage (60 percent):

$4,500 times 60 percent totals $2,700
Tolls and parking fees total $150
Depreciation of vehicle totals $1,065
This creates a total expense of $3,915          

It should be noted that people using electric motorcycles or vehicles may need to use a different method of calculating their mileage expenses.
 
By learning how to calculate mileage for business you will be able to figure out which scenario will provide you with a higher business tax deduction. In this case, the actual method would be the smarter route for Tad.