# 621 Auto Mileage V. Actual Expense: Who wins?

Welcome everybody to the Main Street Business Podcast. My name is Mark Kohler, and I'm here with my worthy opponent, the one and only Matt Sorensen in the ring with me today, talking about a very, very contentious issue. Yeah, we're gonna battle it out today, but the net result is you're gonna learn how to write off your auto in the best way possible because we're gonna duke it out between mileage or actual expenses, which wins? Yeah, and you're gonna have fun.

You're gonna have a good time. You're gonna learn something and have fun. It's like that's pretty much what this podcast is all about. That's what it's all about.

It's in it's uh edutainment. So you're welcome. Okay, so Nomat, um what do you want? Uh mileage or actual?

Round one? Round one. Ding! Bring it in this corner.

This corner. Can we can I get somebody announcing me to come out and do it? Yeah. Okay.

Okay, there's a mileage, you're I'm gonna take mileage. Oh, okay. I'm gonna take mileage. Mileage, okay, you know, and uh that means you're actual.

I guess so. We drew straws and Mark got the short straw. Yeah, yeah. It's I won't say what it's not that it's mileage is better or worse.

It's just maybe I got the cool robe. I come out with better music, like little kid rock coming into bong bong, you know, into the stadium, whatever. Okay, so mileage, what do you like about mileage for you, you what's here the first thing I want to say is just to put this in context. Let's say you drove 10,000 miles for the year, and you're a business owner, self-employed.

Well, I can take 72 and a half cents as a deduction, and I'm getting $7,250 as a deduction on my business return, sole proprietor, partnership, S-corp, doesn't matter. I get a ride off that mileage. Simple, easy, done. Okay.

Huge deduction. This is one everybody should have. You are gonna have some mileage if you're a business owner. Every business owner is gonna have this.

But was that 10,000 total miles, 10,000 business? It sounds complicated. How do I how do you know? I think this is a little complicated.

Do I have to have a mileage log? I I don't know. I'm to make that sound so simple. I don't know if I can take that punch.

That's true. You're trying to dodge this punch. You don't want it to land. Okay, so so what I would say is this is business miles.

Okay. This is not you're going to the grocery store to buy a gallon of milk, but if you're going to the grocery store to buy some stuff for the company party, now we're now we're now we're in business miles. Okay. All right.

So I did there? Yeah, that was good. So good business miles. Now here's another thing that's not business miles.

Commuting. All right. Oh, I that was my counterpunch. I thought I was gonna get a little slip.

Hey, you want to take a hit? You can fall down. I'll hit your head. Just like walked into it.

No we're in his white right here. Yeah, just go ahead. Keep talking. Just like put your face right into my gloves.

All right, but you open the gate. So I guess I'll have fun with this. I'll at least finish the point. Yeah.

It's only business mileage that you can deduct. Um, commuting doesn't count. So going to and from work doesn't work, but yeah, it's pretty cool. It's like simple, easy, 72.

5, 2026. Now let me let me have a retort to that. Oh, okay. Okay, counterpunch a counterpunch.

Okay. Counterpunch is what if I have a home office? Oh, and now I'm going to the airport. Now I'm going to a meeting.

Now I'm meeting a vendor. Stacker. Now those are business miles. Because I'm going from the home office to these other places, and that is now business miles.

It's not commuting miles. Okay. All right. Okay.

Well, all right. Thank you. Okay. My fine sir.

All right. Little tip there. Dance around a little bit. By the way, I learned that one from Mark Chick Miller.

Yeah. What is it? Something feathered? You know, you're going to little share like that.

Yeah, what is it? Uh sting like a butterfly. Wait, float like a butterfly, sting like a few. Float like a butterfly, sting like a butter.

Like a bee. Yeah. That was Ali. Oh yeah, Muhammad Ali.

All right. Come on, Tristan. We're going to screw this up. That was Tyson.

That was Tyson. Light is a feather. I don't know what that is. That's something else.

That's like a dumbbell. That's like witchcraft or something. That's dumbbell. All right.

Okay. All right. All right. Actual.

Okay. Well, you know what? 72 and a half cents just doesn't cut it for me. I want a bigger ride-off.

You want more? I want more. I deserve more. I'm a business owner.

I'm hungry. And I got a big old truck. I'm freaking driving down the road. I'm a contractor.

I need a truck. And 72 and a half cents, that's that's chump change. I want to write this truck off. So I'm going to go with actual.

Actual gives me fuel, repairs, maintenance, insurance. When maintenance comes around, that's cleaning the truck, too. That's a I got registration, tires, all those things goes in actual expense on my tax return. And uh then I can throw in depreciation.

One big beautiful bill, baby. So I can take out a huge chunk of that truck in the first year. I mean, I can do some examples here. This is the bonus depreciation.

This is bonus depreciation. And I and I'm I've I've got some more things up my sleeve here. But example, I've got a $60,000 truck, and I go, I'm I'm gonna be 80% business use, 20% personal. I'm gonna go to the lake.

I'm gonna take the boat up to the lake. Yeah, you know, I need this truck for some fun too. I'm gonna go shoot a gun, something. All right.

But $60,000, I take 80% of that. That's $48,000. I can take that $48,000 in year one. Even if I had an auto loan.

I put down a thousand dollars and drove off the lot with this kick kick butt truck, and I get it right off. $48,000 plus fuel, plus repairs, plus maintenance. You got that measly $7,200 deduction. So I don't know.

Okay. How are you feeling? You're okay? Well, that one did hurt.

Let's be honest. That was a little painful. Great for your tax return. Yeah, and that's what I'm doing.

I'm I'm taking the hits for you. Okay. Okay, right. Now, here's what you were tracking all that stuff, right?

So the uh insurance, the repairs. Are you keeping all your gas receipts with that? Damn you. Little duck and roll here.

So with the ability to take a greater ride off there, which you can get with the actual, including the bonus depreciation, that stuff you're talking about. You gotta track all that crap. Mileage, I just gotta track that. I went to a business out of business purpose for that mileage.

I'm not keeping my gas receipts, I'm not doing all that. It's simple, it's easy. Okay. Also, here's here's another one.

What if I just use that vehicle 20% of the time for business? You know, otherwise, it's mostly personal. I got a side hustle. Okay, okay.

Well, you do not get to take the actual deduction. I don't even have the option. You don't even have the option. You got to be 50% or more business use.

Fair. But I can take mileage. Okay, let's lean on that 20%. Okay, so you go buy that very nice vehicle or truck, and you're over $50,000.

And you actually don't put on the you, you know, you want to save it for the nice trips, the nice client meetings. You know, that's the nice client meeting, right? You're not commuting in this thing, it's the it's the nice car. And you're not putting on a lot of miles.

Your deduction even went down further. You only put on 5,000 miles. So now, man, we're down to $3,500 to see what you did there. Yeah, or whatever, you know what you did there.

We did fewer miles business, but the car value went up. So the mileage is hurting me. Because so, what you're saying is for actual, which is a good point here, if you do have some personal use of that, you want to make sure it's below 50%. So you're only taking that car out for the great client meeting.

You're trying to impress, you're the real estate agent driving your clients around, looking at houses. Leave that POS car at home. That's the one you take mileage on when you bring it out. You're taking the mileage on that baby.

Yeah. And I that's fair. And I, you know, we're gonna probably make some some arguments here too for our opponent a little bit here, but I that's true. I think that is a really important point.

Is that when it with the meth when you're going actual, you uh if possible, you want to have that second vehicle, that one that is the commuter. It is to the go to the grocery store. And you can at least argue that with the IRS so that you can drive up the business use percentage on that more expensive vehicle. Um, and that's gonna help get you that larger depreciation deduction, the more expenses, because you can show this other car.

Yeah. So all right, I like that. That's okay. But point still is important.

You must have 50% or greater use to be able to take actual in the first place, which is not required for mileage. Okay, so I like mileage, by the way. Any of you side hustlers and stuff, um, this is simple, easy, not complex on your tax return. Okay, actual is gonna be some work.

Okay, all right. No, we're gonna have an accountant. You better have an accountant and do an actual. Well, okay.

Well, now we're getting nasty. That was a that was below the belt. I mean, having an accountant's not the worst thing. No, no, fair, fair, fair.

No, I you are. Here's my point, though, and I don't know if this hits home for everybody here. If you missed that, we're here's the replay on that. You know, if you're watching the fight, you were eating some nachos or something.

Okay, all right? When you have low mileage on a vehicle, business mileage, you're you're gonna want to lean towards actual because you your your deductions lower, your value of the car is higher. So you want to be thinking through this, going, hey, if I really want to write this vehicle off of my business and I'm gonna spend some money for it, I'm gonna want to, and it's gonna be lower mileage, I'm gonna want to go actual. Conversely, I'm a realtor.

Man, I'm gonna throw down on the mileage. It's gonna take some a beating, you know. I need a car that's cool. I mean, you gotta look impressive as a realtor.

I get it. My daughter Sydney, little shout out, Orange County. She uh she's a realtor, she's got a cool, she's got a uh range, not a range roller. Oh my gosh, a land, not a land, where did she drive in?

Forerunner? Forerunner. She has a forerunner, and it looks good. It's it's not too ostentatious, but it's also cool.

It looks cool. So she's putting on a ton of mileage. She would, I would not want her to take actual, even if this forerunner was 50 grand or whatever. I want her to go with mileage because every year, man, she's gonna hit it with 20, 25,000 miles of business.

That deduction, we are gonna milk that mileage deduction, even though it's a higher value. So I think my takeaway here is you gotta you gotta really figure out am I gonna put on a lot of miles in this car? And how much do I want to spend on the car? And those are gonna be drivers.

Okay, so we're already contrasting the two. We're supposed to be fighting this. I know, I know we're just so conciliatory now. Yeah, we're in that one of those hugs things, you know, where you're getting tired and you're kind of like, hey, wrapping up or whatever.

Yeah, they're wrapping up, the crowd's booming. They're like, show us some action. We want to fight. Okay, you got you wanna I I've got some things.

I I got one. Okay, right. I want to throw a punch at you. All right.

Um, what about when you sell that truck you just took bonus depreciation on? Did you track that? Do I need to recapture anything? Wow, wow, yeah, that that hits hard.

And it is true. You cannot 1031 exchange a vehicle personal property any longer. Uh, and that changed it in the Tax Cuts and Jobs Act. So when you go to sell that vehicle, if there's any remaining useful life and you accelerated that depreciation, you got to give some of it back.

Now, my little counter to that, you know, little okay, little move here, is uh when you recapture that depreciation, you're also typically buying another vehicle that next year, that same year, because you got rid of one, you're gonna get another one. So you're gonna grab that depreciation to offset any recapture. So I think there's a little of that going on where you can use an offsetting write-off the year you sell a vehicle because you're gonna hopefully replace it. So you can play that game a little bit to deal with the recapture.

Um and do you have to worry about recapture on mileage? What if I sold the vehicle? But I took a lot of mileage. I it was that forerunner I put 20,000 miles on and took a $15,000 deduction on.

I mean, that's what I would got out of $15,000 in a write-off on that. Okay, but here's the thing everybody, do not be afraid of accelerated depreciation because what you're getting is an interest-free loan from the IRS. You're saying, hey, I'm gonna take that 38 grand on that truck right now as a write-off, even though I'm gonna sell the truck in three or four years and have to give some of that deduction back, you just saved thirty taxes on 38,000. If you're in a 30% bracket, Fed and State, you just save 10 grand in tax.

Now maybe you have to recapture half of that three years later. So you give the five grand back. You got an interest-free loan from the IRS. That too many people stay away from depreciation and go, well, I gotta give it back.

Yeah, but you get to have it for three years. That could be fun. Little borrow that right off. Yeah.

I got a good metaphor there. Yeah. Okay. I like it.

All right, now I'm gonna throw down another strategy that I think is great for actual. So let's say I go, this doesn't because with with uh mileage, you can't do this. What am I gonna do with my lease? So if I go lease a vehicle, now what I love about leasing is I don't go have I don't have to go spend 80 grand for that BMW and have that sunk cost in there.

I can just go lease a BMW. Maybe it's $700 a month, a grand a month, whatever. But I love those models when you uh the financial models where you start to compare leasing to buying because you're gonna give those keys back in three years. So when you lease, you're gonna use the actual method.

You're gonna write off a good chunk of that lease payment, fuel, repairs, maintenance. If you have repairs and maintenance on your lease, you got bigger problems. But the point is the lease is is sweet. Because you can get that higher value car.

Who cares about mileage? You know, I get that write-off. Yeah. That's a good economic decision.

Yeah. Because I'm yeah, I mean, you're you are spending the money too. So let's think of it from a financial situation. Okay, okay, I like it.

Yeah, I got the bigger deduction because the lease expenses, say I'm dropping a thousand bucks a month. All right. But I don't have that thousand bucks anymore. Also you go buy it for whatever that a lot of times the loan payment on the car is more than the lease payment.

Yeah. And but but let's just hang in here. Let's just let's just say you decided. This is where I don't I don't mean to push mileage into the cheaper car, but I'm just saying the bank for your buck on the write-off for a mileage for mileage when it's like the car you already have that might not be so great, but it's paid off versus the new lease.

Maybe let's contrast that. The car I already have, I'm not gonna take actual on, it's not worth that much, but I can start throwing miles on it and I can be taking mileage on it. And so so if if I'm in that now, let's say that that car is toast or you don't want to be caught dead seeing a client or doing anything for business in that car, then this doesn't apply. Then we can look, then that lease thing, because now I'm gonna be paying, you know, a payment to the bank for that car.

And we want to come back to interest here in a second. But so I think it depends on the what cars we're talking about here, too. Absolutely. And I I think this is so I'm actually loving this podcast more than I envisioned because you're you some people are like, well, I'm just gonna how many of us have bought a freaking car impulse buy?

Like, I'm gonna buy a car this weekend. Oh boy, you walk on that lot, buckle up. They're good. They're good.

How many people have done that? Mark. Come on, you have to. I show up to Park City to go ski with Mark.

I'm like, hey, hey, how's it going? I bought a new car. I had to. I had to.

I was like, we're on vacation. We're supposed to be skiing. Hold on, this is getting personal. This is it and get below the bell again.

All right, now hold it. Okay. What? Some of you might take your time in a vehicle acquisition.

Bless you. I would argue that you need to include that tax advisor a little more in the conversation beforehand. Don't rush out and impetuously buy a vehicle because here's what like I like what Matt said. Let's do some example.

Let's say you're a realtor and you're gonna put on a ton of mileage. Okay, so if you're gonna be putting on a lot of mileage, we're gonna be looking at a very different type of vehicle. We know we're not gonna go actual. We want that right off to ching every year.

But now, oh so but I need that extra vehicle that's gonna be my personal use. Uh having that personal use, I guess, trump card in the in the driveway, even if it's a cheaper car, now you've got that argument that, well, I use that personally all the time. Number two, you're a contractor. You need a truck.

Okay, that's gonna be a different dynamic. Now I need a truck, 6,000 pounds or more, typically gonna be more expensive, and your mileage might be moderate. You're kind of in the middle of the road there. Well, I want to accelerate that write-off on that truck because it I can go 100% bonus depreciation up to my business use percentage.

And if I've got another vehicle, I might say it's a hundred percent business use. So now I'm getting this massive write-off up front, but I'm not gonna drive around a truck as a realtor. So I think your your occupation, how many miles you're gonna put on, how much you want to spend. Are you like, well, I want this luxury vehicle, but I don't want to go drop a hundred grand on that thing.

The loan payment's $3,500 a month, but I could get a lease payment for $1,200. Yeah. So you there's economics, it gets some conversation with your accountant could really pay off. That's what I'm trying to get.

Yeah, and also maybe you're wanting to have a December to remember type of event. What are the big red bows? Those are so cute. Because this is the end of the year when we're clients are trying to get that car that's over the weight limit here to be able to ride it off at year end.

They're trying to get Walmart deduction in. They've had a big year, and frankly, they want to reward themselves, but also get an amazing ride-off. You know how many couples I've driven into marriage counseling? It's great.

Drove no pun intended. So I get a call and I'm on Zoom and there's husband and wife there. And and I'm like, what's going on? It's December, we're doing our year-in tax planning.

And all of a sudden, I realize the guy is dying to go buy a truck before you're in. And his number one argument is tax write-off. And his wife is already like, you do not need a new freaking truck. And I'm like, and you're supposed to adjudicate this.

It's not going anywhere good. So I'm like, who's paying my bill this this month? Or what who's really my client here? I'm like, I'm out, you know.

Is this a trick, trick question? Yeah, I don't need this. So, but but seriously, that's another little consideration here and factor is like, is this a year where you're in a 37% bracket or that that write-off is more valuable? Which drives down the cost of the car economically.

Yes, yeah. And or maybe you're just in a lower year year, maybe you're maybe you're just in a 20% bracket, and the the value of that deduction isn't as high. So when you're in that high years where you're hitting the maximum rate, I can see actual being ac being actually more important where you might want to chase that to grab grab that deduction to help minimize that tax burden. Well, um, a couple other side notes.

It does not have to be a new car, it could be a used car. You can also contribute a vehicle to the business. You can always dial up mileage on an extra via the teenagers are helping with the business. Yeah.

Uh spouses driving. You can pick up mileage on everything. Um, great point. Also, let's say that you have a loan for the the the car.

See, when when you're doing mileage over on the mileage category, the 72 and a half cents for your business miles is supposed to capture everything: your gas, your repairs, your insurance, the depreciation essentially of the car. It's supposed to just be let's just give people a number and let them just run with this. And they say, you can do actual if you want, go do all the math and it's a little more work. And this is where we're saying that does pay off actually, but mileage is easier.

But the one thing that they did not include was interest on the loan. So if I bought a vehicle that and I'm taking mileage on it and I have a loan interest on it, that I'm so when I'm paying the bank, there's principal paydown on it, but there's also some of it as interest. That interest component of it is deductible in the business as business interest. Now, again, we've got to look at what's the percentage of business versus personal use.

It wouldn't be 100% deductible, but the percentage that's business use, let's say you're using that car 80% for business, 80% of the business interest would be deductible. Very well said. Fine, sir. Now let's get back to our little metaphor analogy role play here.

We're in the ring, it's getting ugly. Like we're we're gonna have to go to the cars. You know, we're exchanging blows, we're probably a little scrappy, scrappy. We're we're fighting for each other and maybe helping each other out with some dumb moves.

I so I so the the the I guess the big reveal is is this. Um Both are awesome. It depends on your situation. I know some of you hate that.

You're like, just tell me which one to freaking do. But you learn the pros and cons of how to contrast that if you've gotten this far and you're still watching. Yeah. So even though this might go to the cards and the judges to see who wins, I want to I want to try to do a little decision matrix here.

Let's just I'm gonna do my best here. You tell me if you'd modify it a little. I'd say your first question, and you said it earlier, and and I'm gonna take a Dave Ramsay approach. Don't chase a tax deduction.

Buy the car first or look for the type of vehicle that you actually need and can afford. And Dave Ramsey would argue pay with cash. You're not going into debt for this thing that's going to depreciate in value. I guess my first decision matrix is economically decide what makes the most sense for you.

Then we'll go to stage two. What are your thoughts? I like that. I like that.

And also some of your businesses are different. And that's why we kind of contrasted things. Let's say you're a dentist. Okay, you're not gonna have massive business use and mileage, likely.

You don't need a big truck either. Yeah, but you're the contractor going to job sites. You're the real estate agent driving to it. And but even if we take the contractor versus the real estate agent, the contractor needs a truck and and um it's gonna have high mileage.

The realtor doesn't have to do a truck, they might not even like that for an appearance for however they're trying to brand themselves. And so they so but they could obviously do an SUV, I guess, and get over and get over the weight limits. So um, but let's let's look at what what makes sense for your business, the the auto next here. I like that.

So, what can you economically afford? And then what makes sense for your business? It's and I know some of you want that sexy big truck or that a luxury auto or the convertible or whatever. And and I've so said to so many clients too that that may be down the road.

That's a goal. You're like when I hit X dollar in sales, or I get to this level in my business, or I have an exit on this rental property, or that I finally sell, set some goals for yourself and just be careful. This this is millionaire next door concept, people. Yeah, wealthy people are a little more cautious than you realize.

The people driving around in flamboyant vehicles, you ought to see their bank account. It's not always you know, okay. Third, so you're gonna be smart about what you can afford. Number two, you're gonna think about what's best for your business, your look, your image, your utility, whatever.

Third, you gotta go actual I third, how many, how many miles are you gonna put on? Ooh, there we go. Yeah, it's just gotta be like, what are you really gonna put on? Yeah.

And that's why I'm like, the dentist, this might not be, you might need not need to spend too much time on this. You might be like, I'm gonna go to some conferences. Do you really meet your patients? No, you don't.

Um, it's so, and but you have great income. And you're not gonna you could you use a deduction, but you're gonna have some. So you're probably sitting over here in mileage, is my guess. I'd agree.

And you're not gonna have over 50% business use because your commuting doesn't count. Um, but I think this is a good um point to make that you might have multiple businesses too. You might have rental property. Yeah, you might have your S-Corp over here, and you've got all these things going on.

You can take, you're not gonna have one business where you're 50% or more business mileage, but you might have business mileage on multiple vehicles. I had a client that had he was a hard he owned a Harley Davidson, he'd go show rental property with his Harley. And he was kind of a brand of his. If you're a motorcycle owner, let's go look at property on our motorcycles.

And he could write off the mileage on that. So you might have an RV. You might so I don't know. I just think you gotta consider your mileage and then multiple businesses.

That'd be my next matrix. Are we gonna be able to bury this or hide it? Yeah. And I I think the contrast we did with with when you talked about um Sydney and the Forerunner and high mileage, 20,000 a year, let's say, it's a big that's a big deduction.

And that's a a nice car, but it's not like over the top. Yeah, I think you used ostentatious. Yeah, I did. Is that the word you used?

Yeah, that was a good one. Her husband's named Austin. Is that right? He's always being so ostentatious.

Um I haven't used that one. I can't believe it. I mean that's a total bad joke I would have got. Yeah, yeah.

Next time he's harvesting. Just quit being ostentatious. Um quit being you. All right.

Anyways, okay. If but that that that's a good example where even though she could do actual, it's a lot of business use, it's the majority of the use of the auto, the mileage is paying off. But let's come over here to the contractor that maybe only has 10,000 miles a year, but it's still the majority of their use in a truck. They may actually want to go.

The actual could be more bang for their buck. Yeah. And help you a lot more in the long run. Yeah.

All right. So my last, my last strong point here for mileage is it's easy. Yeah. It's easy.

Everyone can do it. It's simple on your return. You're not having to track too much. I know you got to keep a log of your business miles versus personal use, but I'm not tracking every receipt.

72 and a half cents a mile is pretty damn good. Side hustle, main hustle, doesn't matter the size of the car, POS, nice car, you can do mileage. I love it. And my final point would be take advantage of it.

So many accountants, I'll look at I I can't tell you how many tax returns I've looked at in my career, and they have a rental property on a schedule E and there's no auto deduction. I mean, how do you not have some auto deduction on even a crappy rental that's down the street? You're still gonna have some auto. So don't let your accountant tell you this is high risk or whatever.

And but a lot of accountants, if you don't bring it, they're not gonna ask either. You've got to be engaged in this process, be aggressive, go for it. I think people leave money on the table here, too. That's my final point.

Yeah. Well, thank you everybody for tuning in. Hopefully, this um battle of actual versus mileage helped you understand the differences, the pros and cons. Well, thank you everybody for tuning into this.

Hopefully, this battle between actual and mileage helped you learn something about it and the situation that you might be in and where the benefits could be to help you get the maximum auto deduction on your tax return. Because our goal is here is we want you to pay as least as possible and keep more of the hard-earned dollars that you're earning every day in your pocket. And I'm sure some of you are like, if I paid pay-per-view for that fight, it was not worth it. I don't even know who the hell won.

They were like running into each other, whatever. But are we charging for this podcast? You didn't tell me this was behind a paywall. I know.

Damn. Did I get a cut at that? Maybe. You know.

But I I uh yeah, no, I think it's a it's a tough debate to win. This is gonna be a draw, and it's gonna depend on your situation. Thanks everybody for listening, watching. We'll see you next week for another episode of the Main Street Business Pod.

We'll see you next week for another episode of the Main Street Business Podcast. Please give us a five star, two thumbs up. Uh uh yippee. We'll see you next week.