If you are self-employed and use your automobile for business, keeping a mileage log might be the most profitable use of your time all year. I know that sounds outrageous, but it is often true. Many, if not most self-employed people find keeping track of the business use of their vehicle to be an annoyance and they just don’t do it. After all, the need for a mileage log only arises at tax time, so it isn’t on our mind all year.
How much is your time worth? Most of us think our time is too valuable to spend recording our business mileage in a log book every time we get in the car for business purposes. But I’m going to convince you otherwise.
First I’m going to make some assumptions. I’ll assume that as a self-employed person you file your taxes on a Schedule C as a sole proprietor, thereby subjecting your business income to the self-employment tax at 15.3%. Next I’ll assume you are in the 25% marginal tax bracket. That is, for each additional dollar you earn you pay 25 cents in federal income tax.
For purposes of this example, I’m going to assume that you drive about 8,000 miles per year for business purposes. That means driving to clients, to vendors,to the office supply store, to the post office, etc. The standard deduction allowed by the IRS for business use of your automobile has been hovering around 50 cents per mile in recent years. As I write this, the allowable deduction is 55 cents per mile. For 8,000 miles, that gives you a deduction of $4,400 against your business income. Since you are paying tax at a rate of 40.3% (15.3% self-employment tax + 25% federal income tax), that $4,400 deduction will reduce your tax bill by $1,773! Continue reading ‘Earn Over $200 an Hour by Tracking Your Business Automobile Mileage’ »