Your Complete Mileage Deduction Guide

What is Mileage Deduction?

Mileage deduction allows you to deduct a portion of the cost of driving your vehicle for business purposes from your taxes. It covers expenses like gas, oil, insurance, and vehicle depreciation.

Who Can Claim Mileage Deduction?

There are two main subgroups of those who are eligible for mileage deduction.

Self-Employed Individuals

If you’re a sole proprietor, independent contractor, or self-employed professional, you can claim a mileage deduction for business-related travel. This includes trips to client meetings, job sites, or shopping for supplies.

Employees

While employees generally cannot deduct mileage directly, they may be eligible for reimbursement from their employer. Also, these reimbursements are often tax-free.

How to Claim a Mileage Deduction as a Self-Employed Individual?

To claim a mileage deduction, you’ll need to report your business income and expenses on your self-employment tax return (Schedule C).

Steps to Claim the Deduction:

1. Keep accurate records to support your claim

You must either keep track of your vehicle expenses or keep a mileage log.

2. Report Income and Expenses

On Schedule C, report your self-employment income and deduct your business expenses, including the mileage deduction.

3. File Your Tax Return

Attach Schedule C to your Form 1040 (individual income tax return) and file it with the IRS by the tax deadline.

How to Calculate Mileage Deductions?

As mentioned above, you have two options for calculating your mileage deduction:

The Standard Mileage Rate

This is a set rate per mile determined by the IRS. To calculate your deduction, multiply the number of business miles that you logged by the standard mileage rate.

The Actual Expense Method

This method allows you to deduct the actual costs of operating your vehicle. These expenses include fuel, repairs, and depreciation among others. Remember to keep a detailed log of your vehicle expenses and keep your receipts. To calculate your deduction, determine the percentage that you use your vehicle for business and multiply it by the amount of your deductible vehicle expenses.

Choose the method that will result in the largest deduction for your case. Usually, the standard mileage rate yields larger deductions, unless you operate a car with exceptionally high costs.

Mileage Logs

Maintaining a detailed mileage log is crucial for claiming a mileage deduction. Moreover, it helps you accurately track your business-related travel and the IRS can request it to support your claims.

IRS Mileage Log Requirements

Your mileage log should include the following information:

• Starting and ending odometer readings of the year
• Date of the trip
• Starting and ending points
• Purpose (business or personal)
• Total mileage

Consequences of Inadequate Records

Failing to keep proper mileage records can lead to inaccurate records that can trigger IRS audits and result in the IRS not accepting mileage logs. Therefore, it’s essential to maintain accurate and complete records to avoid fines.

How to Track Your Mileage

There are several ways to track your mileage, including:

• Notebook: A notebook is a simple method to keep records on the go. On the other hand, this requires you to manually piece your notes together into an IRS mileage log.
• Spreadsheet: A mileage log spreadsheet can provide more transparency and flexibility as it allows you to make calculations. However, it can be inconvenient to keep updated on the road.
• Mileage Tracking Apps: These apps can automatically track your mileage and generate reports.