Your salon may have been missing out on an important tax deduction but it is tricky when you can take advantage of it. This article discusses how to calculate your deduction, what records to keep, and when it is applicable and not.
Every small business owner wants to save money, and the IRS has created a small-business car deduction that is perfect for those who have a vehicle. The actual mileage expense can be deducted annually from your taxes at the rate of $0.54 per mile. Let's take a closer look at how this small-business car deduction works so you can figure out if it would work with your small business!
The IRS says small businesses can deduct mileage for the vehicle as a standard deduction. The small business owner would have to document their mileage and keep records of all expenses related to operating an automobile, including gasoline or other motor fuel costs, oil changes, tune-ups, tires, insurance premiums (including state mandated liability), repairs and maintenance. Salon Accounting can help you keep track of the number of miles and deductions that are applicable to your business.
Your daily commute to a business location is considered an expense related to operating the small business and is not a deduction. Again, it is an expense but it does not qualify as a deduction. The only deductions you can consider are those below.
However, if you use your automobile to make a delivery or pick up supplies from a supplier, those miles are considered an expense and deductible. Also included is the mileage you may incur if you travel between clients at their locations.
Start by logging into the app and navigating to your Setup > Manage Expense Categories page. For each calendar year, you will need to create a new expense category that is the mileage deduction for that year as this changes every year. Here's the link to the US IRS Standard Mileage Rates for the current year. To create the new expense category, give it a name, ex. "2021 Mileage" and set the type as Multiplied and in the Multiplied amount set it to the rate published by the IRS, ex. $.56, then click Create Category.
After you've created the category a shown above, you can navigate to any weekly entry and simply enter in the number of miles that you drove that week that were applicable and it will calculate the deduction! To avoid any possible audit red flags, you can use the notes field on the top of the journal to document what type of travel that you incurred that week for reference.
The small-business car deduction is a great way to save money on your taxes, but it’s not the only tax saving strategy. If you want more tips and tricks for how to keep more of your hard-earned dollars, check the other Salon Resources Tax to see what other business deductions. If you're not already a Salon Accounting subscriber, get started with a free 14 day trial.