Tesla automobile plugged in and charging a Supercharger rapid battery charging station for the electric vehicle company Tesla Motors, in the Silicon Valley town of Mountain View, California, August 24, 2016.
As business income grows, tax obligations can become more burdensome due to the progressive tax system in place. Tax planning is essential to maximize take-home pay without increasing workload or client base.
Business owners can benefit from tax deductions related to expenses they already incur. With over 280 million cars registered in America in 2022, many business owners likely own a vehicle. Even if not used exclusively for business, the miles driven for business-related tasks can lead to significant tax breaks.
Self-employed individuals or independent contractors can reduce tax bills by utilizing their vehicles for business purposes. Deductions can be claimed for trips to meet clients or purchase supplies. The choice between per-mile deduction or actual car expenses deduction must be made, not both.
Costs like parking and road tolls are deductible regardless of the chosen mileage deduction method. For tax year 2023, the IRS standard mileage rate is 65.5 cents per mile for business use, 14 cents for charity work, and 22 cents for medical or moving purposes.
In 2024, new mileage tax deduction rates have been announced. Business mileage rates increased to 67 cents per mile, charity miles remain at 14 cents, and medical and moving miles decreased to 21 cents per mile.
Tracking business mileage can be simplified by using the standard mileage deduction method. Alternatively, actual expenses incurred for business use, including depreciation, gas, insurance, and maintenance, can be deducted.
For additional tax deductions, opening and funding retirement accounts like Solo 401(k), SEP IRA, or Cash Balance Plan before the end of the tax year can significantly reduce taxable income for 2023. Spouses working in the business can further enhance tax savings.
