How to Charge Mileage to Customers
If you own a small business and often have to travel considerable distances to provide your services, you may have considered if you can and should charge for this expense. The short answer is yes, you can certainly charge for your travel expenses. Let’s dive into the why, how and how much of charging customers for mileage.
When and how to charge mileage to customers
Providing your services to an area larger than your home area can bring you more jobs, customers and profit. In this case, you should consider charging for your mileage to ensure the jobs you take are profitable for you, and not eaten up by extra expenses such as longer travel.
While customers are generally used to such fees, how you present them will depend on your industry practices and competitors, and what customers are used to. Always be upfront with your customers on any charges outside of the services you provide.
There are a few options you can consider when deciding how to charge mileage to customers - you can bundle the charge with your service, ask for a flat rate for distance ranges, a charge per mile or per hour of driving, or use a hybrid system of a flat and variable rate. Read on to learn more about each option.
Charging a flat rate for distance
If you choose to charge a flat rate for the distance you travel, you can consider a tiered system where the first 20 or so miles are free, then charge a higher sum for ranges of every 20, 25 or 30 miles.
Charge per mile
If you choose to charge your customers per mile, you might again consider providing a few free miles, then ask for a rate per mile for each mile you’ve driven to and from the job. Remember to track your miles so you can fairly charge your customers. Choosing a rate will again depend heavily on your industry and car expenses.
Charge per hour
Simply charging per mile might not be convenient for you if you live in a more congested area with frequent traffic. A 10-mile trip in the city might take you double the time of a 20-mile trip in rural areas. In this case, consider charging mileage to customers per hour. You can break up the hour into four 15-minute sections and charge accordingly. So, if you drove for an hour and 15 minutes, you will charge your customer the 15-minute rate five times for the time you spent in your car driving to and from their location.
The hybrid approach
If you struggle to choose the right method for you, you can consider charging a flat rate either per mile or distance, and if stuck in traffic, additional charges for time spent in the car - this method is a bit more complicated but it can help you better cover your expenses for transport to and from your customers.
How much to charge for mileage
The most important thing to get out of the way is that there is no one right answer on how much you should charge customers for mileage. This will largely depend on the industry you operate in and the type of service you provide, the area you live in, who your customers are, and last but not least your car expenses. Naturally, driving a big vehicle heavy with tools or equipment will cost you more per mile than if you drive a regular sedan you don’t weigh down with heavy equipment.
Charging mileage to customers at the IRS rate
As we discussed above, it is up to you to decide how much you want to charge customers for mileage. Choosing to charge mileage at the IRS standard rate will likely go down well with customers as the rate isn’t high. However, keep in mind that it may not cover your mileage expenses. The IRS has now announced the 2024 IRS mileage rate, which stands at 67 cents per business mile.
Regardless of how much you decide to charge customers per mile, the charge is a part of your income and will be taxed accordingly.
Deducting car expenses at tax time
At tax time, you will be able to deduct all business-related car expenses by either the standard mileage rate or by the actual expenses method. Remember to track all mileage associated with your business for a compliant mileage deduction. Find more about deducting mileage as self-employed.
We recommend an automatic mileage tracker app like Driversnote. Driversnote will take care of tracking your trips for you, and you can easily create IRS-compliant mileage reports for your deductions.
Automate your logbook
Mileage reimbursement in the US — rates and rules for employees, self-employed and employers in the US.
The standard mileage rate for business will be 67 cents per mile, effective Jan. 1st, 2024 - up 1.5 cents from the 2023 rate of 65.5 cents.
Find out if you fall into one of the groups of employed individuals who can claim mileage on taxes in the US in 2024.