Because your small business keeps you on the move, the federal government offers a break for business mileage when tax time rolls around.
The rules have changed recently, but in many cases, the Internal Revenue Service offers a deduction for the gasoline you use, as well as the wear and tear on your vehicle. This break is especially applicable if you’re self-employed or an independent contractor, so if you aren’t already tracking your mileage, you’re likely leaving some money on the table.
The regulations can get complicated—it’s the United States Tax Code, after all—but there are some simple things to remember about what mileage you can and cannot deduct.
Track Your Mileage
First and foremost, you should be tracking all the driving you do for work. Even if you can’t deduct all of it for your taxes, knowing this data will help you better understand your business expenses.
In the ancient, pre-iPhone days, people used pen, paper, and the car’s odometer to record their mileage. This method is still a fine way to keep track of your mileage, but you want to make sure to note the date of each trip, as well as the business purpose of the trip. This recordkeeping is crucial in case you ever face an audit.
Technology has made it easier than ever to track your mileage. There are apps, like TripLog or Everlance, that can even record your business mileage automatically and compile it in an IRS-friendly report.
IRS Standard Mileage Rate
The IRS gives you 2 options for deducting business mileage. The most popular option is to use the IRS standard mileage rates, but you can also deduct the amount you paid in fuel and vehicle maintenance. Most likely, the standard rate is better, especially if you use your business vehicle a lot.
As of January 1, 2019, the IRS set the standard mileage rate at 58 cents per mile driven for business use, 20 cents per mile driven for medical purposes, and 14 cents per mile driven in service of charitable organizations. The rate is for the use of a car, van, pickup truck, or panel truck.
“The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile,” the IRS said. “Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.”
It is not likely that this rate will change significantly in the next year, but check with the IRS or your accountant for the most current rates.
Claiming Mileage on Your Taxes
To claim business mileage on your taxes, you must keep a record of your mileage, as well as the business purpose of each trip.
Importantly, you cannot deduct mileage spent commuting to your workplace. Instead, trips valid for business mileage deductions include driving to meet clients or driving to conferences.
If you are an employee and were not reimbursed by your employer for business mileage, you cannot deduct these miles from your taxes—a change from earlier years.
You also cannot deduct mileage twice, as in deducting business mileage alongside deducting depreciating vehicle costs.
“A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle,” the IRS explained. “In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.”
What to Know If You Are Self-Employed
Business mileage is especially important to deduct if you are self-employed or an independent contractor. If you are driving a lot for work purposes and not commuting to a set workplace, it is likely much of this mileage is deductible.
You will deduct this mileage on your Schedule C form, not Schedule A. You may also be able to deduct related expenses, like tolls or parking payments, if they are work-related.
Personal versus Business Travel
When it comes to business mileage deductions, the IRS is very serious about distinguishing between personal and business travel. You must note the business purpose of each trip when recording your mileage.
The tracking can get complex, which is why mileage tracking apps have become so popular.
If you travel from your house to a business lunch and back, you can deduct the whole trip as a business expense. As mentioned above, if you are commuting to your place of work, this trip is considered personal and is not deductible.
You will probably find yourself in situations where you are making business and personal trips during the same trip, like if you drive to meet a client followed by some grocery shopping. In cases like this, you should only record the expenses directly related to your business.