What is the Standard Mileage Rate and How Does It Work?
Definition & meaning
The standard mileage rate (SMR) is a per-mile rate set by the Internal Revenue Service (IRS) that allows small businesses and self-employed individuals to calculate their vehicle expenses for tax deductions. This method simplifies expense tracking compared to the actual costs method, which requires detailed records of all vehicle-related expenses, including fuel, maintenance, and insurance. The SMR applies to business-related travel but does not cover regular commuting from home to work.
Legal use & context
The standard mileage rate is commonly used in tax law, particularly for small businesses and self-employed individuals. It provides a straightforward way to deduct vehicle expenses without the need for extensive record-keeping. Users can manage their tax deductions by utilizing legal forms and templates available through platforms like US Legal Forms, which can help ensure compliance with IRS regulations.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A freelance graphic designer drives 1,000 miles for client meetings throughout the year. By applying the standard mileage rate, they can deduct a set amount per mile driven, simplifying their tax filing process.
Example 2: A small business owner uses their personal vehicle for business errands. They opt to use the SMR to calculate their vehicle expenses instead of tracking all individual costs associated with their vehicle. (hypothetical example)