Choosing Between the Actual Cost or Standard Mileage Rate Method

The Amount of Tax Deduction is a Good Benchmark to Use

If you use your car for your craft business, you may be wondering how to take a business tax deduction for its business use. There are two expense methods you can use to take a tax deduction for your business vehicle: actual cost or the standard mileage rate. The question then being, which one is best? The answer to this question hinges on why you use the vehicle, how many different vehicles you use in your business and how expensive it is keep your car up and running. And of course – you have to estimate which method will give you the biggest tax deduction over the life of the vehicle.

Also, I always ask my clients to think about the number of miles they’ll be putting on the car business versus personal. Craft business owners can put many miles on their business vehicle driving around to different cities and states selling at arts/crafts shows during the year. Others arts/crafts business owners who sell primarily via the internet or in their local geographic region will incur proportionately fewer business miles.

Using the Standard Mileage Rate Method

Rule of thumb, I would use the standard mileage rate if my business use of the vehicle is less than 50%. Then you don’t have to monkey around with depreciation. So if you’re a part-time crafter or have a situation where you don’t often leave your studio for business purposes – seriously consider the standard mileage rate.

Also, when you’re thinking about miles that count as business, your miles from your residence to your off-site workshop/studio or shop are commuting mileages and are not counted when adding up tax-deductible miles.

Here are some standard mileage rate guidelines applicable to artists and crafters:

1. Unless you’ve made the leap to a large wholesale operation, you probably don’t have five or more arts/crafts business vehicles. If you do, you can’t use the standard mileage rate. So if you own four or less business cars – you’re a-ok with using the standard mileage rate method. Five or more – use actual cost.
2. You can use standard mileage rate for leased vehicles – but you have to use it for the entire lease period, including any renewals.
3. Lastly, if you’ve already started using the actual cost method for the business car, you can’t switch to the standard mileage rate mid-stream for your tax deduction. Although if you started by using the standard cost method, you can switch to the actual cost method.

Using the Actual Cost Method

When you use the actual cost method to figure your arts/crafts business tax deduction, keep in mind that your recordkeeping requirements will be more stringent – so more work for you. For any vehicle business expenses you’re deducting, you’ll have to keep records like paid receipts to back it up. You’ll also have to learn how to figure the business vehicle’s depreciation or have a paid tax preparer do it for you.

Here are some actual cost guidelines applicable to artists and crafters:

1. Leased vehicles aren’t normally depreciated. You calculate the equivalent of depreciation by figuring up the business portion of the lease payment. Keep in mind you’ll also have to include in income a lease inclusion amount. It’s not a huge amount but it’s just one more calculation you’ll have to factor in when doing your business taxes.
2. Depending on special depreciation write-offs that may be enacted by Congress year to year, the depreciation tax deduction can vary wildly. So you’ll have to stay up to speed on current tax events.

   The weight of your business vehicle also comes into play – and this is certainly an issue for arts/crafts businesses hauling around heavy product. If the business vehicle loaded weight is over 6000 pounds then your tax-deductible depreciation is higher. How do you know if you’re truck or SUV is over 6000 pounds? This info is available to you at purchase. But for example a Ford Explorer is under and a Ford Excursion is over. The behemoth Chevy Suburban weighs in at over 7000 pounds – Yikes!

3. If you operate as a corporation or have made the S-Corp election and the corporation owns the business vehicle, the actual cost method must be used.

I know it can be somewhat confusing. Business tax deductions can seem to be convoluted at best. Your accountant can take the facts and circumstances of your arts/craft business and tell you which method is best. Don’t want to use an accountant or tax return preparer, I recommend you stick with the standard mileage rate method if possible.

Additionally here are some links to relevant info about expensing a business vehicle provided by the Internal Revenue Service:

Travel, Entertainment, Gift and Car Expenses

Recordkeeping Requirements