Mileage Deduction – Rate for 2014

On December 6, 2013, the Internal Revenue Service announced the mileage rate deduction for 2014. They reduced the amount allowed one-half a cent to 56 cents per mile. How do you calculate and use the mileage rate formula for tax purposes? If you are a new business entrepreneur, you will want to know how to track the miles driven, what is allowed and how to calculate the deduction for tax purposes.

For many new business entrepreneurs, especially those involved in transportation, it is important to understand this deduction. It is also valuable to know the compliance requirements and how to calculate this deduction. If you are a typical small business owner, you use your personal vehicle while conducting business operations. You will want to take advantage of this allowed deduction. To give you an example of the real value involved, let’s look at how much money we are talking about in tax savings. 

Savings Formula

Let’s assume you drive a total of 8,000 miles for the business during the calendar year. How much money will you save in your taxes? In 2014, you are allowed to take $4,480 (8,000 miles driven X .560 mileage rate per mile) as a deduction against your earnings from your small business. You will save the following amount in taxation:

Self-Employment Tax [($4,480 X .153 (tax rate) X .9235 (effective value)]=  $633.00
Federal Income Tax  (Assumes a 10% rate)                                                   =    416.35
[($4,480 – (1/2 of Self-Employment Tax income tax adjustment) 316.50)) X 10% rate]
State Income Tax (Assumes a 4% rate)                                                          =    166.54
TOTAL TAX SAVINGS                                                                                  $1,215.89

** Read more about self-employment taxes here: Self-Employment Taxes

From the above formula, you can see that it is a significant savings. If gasoline costs $3.25 a gallon and you get 20 miles to the gallon, then you will use 400 gallons of gas in that year for business purposes. At $3.25 per gallon, the actual cash cost for gasoline is $1,300. You can see that the tax savings covers the cash cost of gasoline for those miles driven for business purposes. It is to your advantage to track this expense. Why do you have to track this expense?


If the taxpayer fails to track the expense, then he is not entitled to the deduction. This is important to understand. Often taxpayers selected for an audit will have a one or two line item compliance audit. This is often one of the line items selected and you must comply with the procedures to track mileage. Failure to comply means denial of the deduction. How do you track this deduction?

Your best tool is a mileage log. On the first day of the year, document the odometer reading, and on the last day of the year, document the odometer reading. During the year, document the odometer reading weekly and write in your log where you go, what the business purpose is, and the number of miles driven.

At the end of each month, write down the number of business miles driven out of the total miles driven that month. You should keep all your gas receipts and repairs and maintenance receipts in a zip lock bag by month. That is how I keep my records.

The question comes up all the time for side trips for personal purposes, such as the occasional stop at the grocery store etc. In general, if the stop is along the path to or from the destination, you do not need to be concerned. However, if you have to go out of your way for personal purposes such going to a doctor’s appointment or to pick up the kids at school; you are not going to be allowed this portion as a deduction. At the common point of change in your path, this is where the business miles stop and the personal miles begin. You need to be reasonable in your thought process in determining personal miles and business miles driven. The key is document, document, and document!

In addition to the miles driven, keep your receipts for tolls, parking, and special decal fees required. These are separately deducted and are not considered a mileage element of transportation costs. If you pay personal property taxes on your vehicle, the tax is deductible on Schedule A, but only the personal ratio of the total miles driven.  This is because the tax is a cost element of the mileage deduction calculation.

Other Important Information

Finally, some business sense to help you. Don’t buy a fancy car just because you get a mileage deduction. You are limited in value for your vehicle. The IRS has calculated that about 22 cents of the 56 cents is attributed to the original purchase price of the vehicle. In effect the depreciation aspect.

It does not matter whether you use a $14,000 vehicle or a $25,000 the 56 cents deduction is the same. From a business perspective, utilize a lesser value vehicle for this purpose. It is just good business sense to keep your operating costs as low as possible. The Internal Revenue Service limits the value of a car to $28,200 and $30,400 for small trucks and vans. If the original purchase price is greater than this dollar amount, then you must use the actual cost method for tax purposes.

In addition, you may use the mileage deduction for up to four cars at the same time.

The mileage deduction is calculated using the following elements of transportation costs:

  • Initial cost of the car (Depreciation)
  • Fuel
  • Insurance
  • Repairs & Maintenance
  • Taxes and Licenses

Interest on any loan to acquire the vehicle is formulated differently. You will need this calculation of interest to present to your CPA for year-end tax purposes. 

If you document your mileage regularly and act in a reasonable manner in using your vehicle the mileage deduction is a very valuable savings for tax purposes. Follow the directions provided and if you need more help, go the resources page, Business Economics – Resources and look in the IRS section for further information in one of the IRS pubs. Act on Knowledge.

Value Investing

Do you want to learn how to get returns like this?

Then learn about Value Investing. Value investing in the simplest of terms means to buy low and sell high. Value investing is defined as a systematic process of buying high quality stock at an undervalued market price quantified by intrinsic value and justified via financial analysis; then selling the stock in a timely manner upon market price recovery.

There are four key principles used with value investing. Each is required. They are:

  1. Risk Reduction – Buy only high quality stocks;
  2. Intrinsic Value – The underlying assets and operations are of good quality and performance;
  3. Financial Analysis – Use core financial information, business ratios and key performance indicators to create a high level of confidence that recovery is just a matter of time;
  4. Patience – Allow time to work for the investor.

If you are interested in learning more, go to the Membership Program page under Value Investing section in the header above. 

Join the value investing club and learn about value investing and how you can easily acquire similar results with your investment fund. Upon joining, you’ll receive the book Value Investing with Business Ratios, a reference guide used with all the decision models you build. Each member goes through three distinct phases:

  1. Education – Introduction to value investing along with terminology used are explained. Key principles of value investing are covered via a series of lessons and tutorials.
  2. Development – Members are taught how pools of investments are developed by first learning about financial metrics and how to read financial statements. The member then uses existing models to grasp the core understanding of developing buy/sell triggers for high quality stocks.
  3. Sophistication – Most members reach this phase of understanding after about six months. Many members create their own pools of investments and share with others their knowledge. Members are introduced to more sophisticated types of investments and how to use them to reduce risk and improve, via leverage, overall returns for their value investment pools.

Each week, you receive an e-mail with a full update on the pools. Follow along as the Investment Fund grows. Start investing with confidence from what you learn. Create your own fund and over time, accumulate wealth. Joining entitles you to the following:

  • Lessons about value investing and the principles involved;
  • Free webinars from the author following up the lessons;
  • Charts, graphs, tutorials, templates and resources to use when you create your own pool;
  • Access to existing pools and their respective data models along with buy/sell triggers;
  • Follow along with the investment fund and its weekly updates;
  • White papers addressing financial principles and proper interpretation methods; AND
  • Some simple good advice.

Value Investment Club

Please Signup
Username can not be left blank.
Please enter valid data.
This username is already registered, please choose another one.
This username is invalid. Please enter a valid username.
First Name
First Name can not be left blank.
Please enter valid data.
This first name is invalid. Please enter a valid first name.
Last Name
Last Name can not be left blank.
Please enter valid data.
This last name is invalid. Please enter a valid last name.
Website (URL)
Website (URL) can not be left blank.
Invalid URL
Invalid URL
Email Address
Email Address can not be left blank.
Please enter valid email address.
Please enter valid email address.
This email is already registered, please choose another one.
Password can not be left blank.
Please enter valid data.
Please enter at least 6 characters.
    Strength: Very Weak
    Select Your Payment Gateway
    How you want to pay?
    Payment Summary

    Your currently selected plan : , Plan Amount :
    , Final Payable Amount:
    error: Content is protected !!