Self-Employed Mileage Deduction: What You Need to Know

What is Self-Employed Mileage Deduction?

The self-employed mileage deduction is a tax benefit that allows you to deduct certain vehicle expenses from your taxes. This deduction is essential for reducing your taxable income and keeping more of your hard-earned money.

The IRS has specific rules for mileage deductions. This includes what counts as deductible mileage and how to document your trips. Compliance with these rules is crucial to avoid issues during an audit. There are three main categories of deductible miles:

Business Miles

You can deduct a significant amount if you use your vehicle for business.

Deductible Business Miles

These include trips for business-related activities, like

• Client Visits: Driving to meet clients or potential customers.
• Business Errands/Supplies: Trips to pick up supplies, post office visits, or any other errand for your business.
• Travel to a Temporary Workspace: If you have a regular place of business and travel to a temporary work location.
• Business Events: Driving to conferences, workshops, or any business-related events.

Non-Deductible Business Miles

Daily commutes from your home to your office or worksite are not deductible, even if you’re self-employed. Personal trips are also non-deductable. 

Charity Miles

If you use your vehicle for charitable purposes, those miles may qualify for a deduction at the IRS charitable mileage rate. Keep detailed records of your trips as a volunteer to ensure you can claim these miles accurately.

Moving or Medical Miles

For active-duty military members moving to a new post, moving miles may be deductible. Similarly, trips to receive medical treatment might qualify for medical mileage reimbursement under specific IRS regulations.

Two Ways to Deduct Business Miles

There are two IRS-approved methods for calculating your business mileage deduction:

1. Actual Expense Method

• How It Works: Deduct the actual costs of operating your vehicle, including fuel, maintenance, insurance, and depreciation.
• Recordkeeping Requirements: You’ll need to save receipts and calculate the percentage of expenses related to business use.
• Calculating Deductions: Multiply total expenses by the percentage of business use.

2. Standard Mileage Rate

• How It Works: Deduct a set rate for every mile driven for business purposes. For 2024, the rate is 67 cents per mile.
• Recordkeeping Requirements: Keep an accurate mileage log showing the date, purpose, starting point, destination, and number of miles for each trip. You also need to include your year starting and ending odometer readings.
• Calculating Deductions: Multiply the total business miles by the standard mileage rate.

Use this tool to calculate your mileage deduction:

Choosing a Method & Switching Between Methods

Your choice between the standard mileage rate and the actual expense method depends on many factors. For example, vehicle type, usage patterns, and ease of recordkeeping. The former offers simplicity, while the latter can provide larger deductions, especially if you own an expensive car.

Note that if you switch mileage reimbursement methods, specific IRS rules apply:

Switching from Standard Mileage Rate to Actual Expense Method

You can switch to the actual expense method in any tax year, regardless of how long you’ve been using the standard mileage rate. However, keep in mind that once you switch, you’ll need to account for depreciation taken in prior years when calculating your vehicle’s value for deduction purposes.

Switching from Actual Expense Method to Standard Mileage Rate

You can switch to the standard mileage rate method only if you used it in the first year the vehicle was placed into service for business purposes. If you started with the actual expense method, you cannot change to the standard mileage rate later.

If You Lease Your Vehicle

Leasing a vehicle comes with unique considerations. You can choose either deduction method, but once you pick one, you must stick with it for the entire lease term.

Other Self-Employed Deductions

Mileage isn’t the only deduction available to self-employed individuals. Other potential deductions include:

• Home Office: Deduct the portion of your home used exclusively for business.
• Phone and Internet Bills: Deduct the percentage of use related to your work.
• Equipment & Supplies: Items like computers and office supplies also qualify.

Conclusion

Understanding the self-employed mileage deduction can make a big difference in your tax return. Accurately tracking your mileage, choosing the right deduction method, and exploring other self-employed deductions will help you save money and stay compliant with IRS regulations.