Self-employed mileage tax deductions

UPDATED FEB 14, 2020 • 6 MIN READ

In this article, we'll go through the rules surrounding mileage tax deductions for self-employed in the US, and explain how to calculate and keep track of self-employed deductible mileage and expenses.

If you're an employee and you're looking for a how-to on mileage reimbursement or an employer wanting to know the rules, you can instead check out our respective guides for employees and employers. If you happen to be both self-employed and an employee, you must keep separate records for each activity. In that case, we suggest you read both guides.

As a self-employed taxpayer, you can deduct expenses for mileage accrued while doing business. If you use a car solely for business, you can deduct all the expenses related to operating the car. 

However, if you use the car for both personal and business travel, you can only deduct the cost of the business use. We'll get to how you can keep track of that later.

Before we get into the details, there are a few things you should be aware of: 1) If you don't read the specifics, you risk losing out on deductions or possibly burdening yourself with tedious work you'd rather not do. 2) Keep in mind that we are not tax attorneys or the IRS or any authority on tax in the US, so be sure to check out the sources provided (mainly IRS's website). We're just trying to help by providing an overview of self-employed mileage deductions. 

Two ways to calculate your mileage deductions

There are two methods of calculating your mileage claim for tax deduction purposes:

The standard mileage rate method

First, you can claim a deduction per business mile driven. The IRS sets the rate for each calendar year, starting in January. The current rate for 2019 is $0.58 or 58¢ per mile for business. You must qualify to be able to use the standard mileage rate, though (see below).

The actual expense method

Another method is to claim deductions for all expenses related to operating the car, such as depreciation, gas, repairs, insurance, etc. The IRS has an updated list of what business owners and self-employed can claim under the actual expenses method.

You might qualify for both methods. Therefore it's worth knowing what goes along with each: As a rule, the actual expenses method requires keeping track of more expenses which can be time-consuming. The standard mileage rate method requires you to keep track of your trips (which is something you need to do regardless of the method you choose).

Note that if you choose the standard mileage rate method, you cannot deduct the costs of operating the car. The standard mileage rate acts as a substitute for that.

You need to qualify for the standard mileage rate method, so let's take a look at the criteria.

Can I use the standard mileage rate?

To qualify for the IRS standard mileage rate, you must either own or lease the car(s) that you use for business. Depending on whether you do one or the other, there are different criteria to keep in mind:

I own the car

To qualify:

  • You must use the standard mileage rate in the first year of the car's operation in your business. In later years, you can switch back and forth between the two methods, but there's no choice for the first year.
  • You must not have claimed depreciation deductions on the car except by the straight-line method.
  • You also must not have claimed a section 179 deduction or the car's special depreciation allowance. You can read more about depreciation in the links provided as well as in this continually updated resource from the IRS (check the date at the bottom though).
  • You must not use five cars or more simultaneously for your business (fleet operations). Switching between them is fine, though.

I lease the car

To qualify:

  • You must use the standard mileage rate in the first year of the car's operation in your business. 
  • You must also continue using the standard mileage rate method for the entire lease period. This includes renewals.
  • As with cars owned, you must not simultaneously use five cars or more for your business (fleet operations). However, switching between them is fine.

To summarise, if you do not use the standard mileage rate during the first year, you can never switch to it, regardless of whether you own or lease the car. You also need to be careful about claiming depreciation deduction and employing more than four vehicles.

How to track and keep records of your mileage

The IRS defines adequate records. For all transportation, the IRS asks that you log (see table 5.2 for an example) the following: 

  • "the mileage for each business use"
  • "the total mileage for the year"
  • the time (date will suffice), place (your destination), and purpose

The record must also be "timely" - in other words, recorded at or near the time of the expense (transportation is considered an expense for tax purposes). Weekly diaries, logs, trip sheets, account books, or similar records are deemed adequate.

In addition, you need to be able to show the business vs. personal use of your vehicle as a percentage. That means keeping a log of all trips and then calculating the share used for business. See how to do the calculation in the section below.

In today's digital world, you can take advantage of a mileage tracking app to save a lot of time. Driversnote and other similar apps not only log your miles for you but also store and generate adequate records whenever you need them.

Mileage tracking made simple

Try Driversnote for self-employed for free today.

What is the current IRS mileage rate for self-employed?

Starting Jan 1st, 2020 self-employed individuals can deduct 57.5 cents per business mile.

The IRS also sets rates for medical, moving and charitable mileage reimbursement. See all the mileage rates, past, present and the coming tax year. 

How to calculate your deduction and business usage share

Knowing the portion of a car's business use will help you figure out how much you can claim for depreciation and other costs of operating that vehicle. Let's go through a quick example: 

You've driven personal ten trips, each of which was 20 miles. That totals 200 personal miles (10*20 = 200).

During the same period, you've also driven three business trips that totaled 100 business miles. 

To figure out your business use, divide your business miles by the total number of miles driven. In our example, you've used your car for business 33 pct. of the time (100/300 = 0,33). 

Calculating your total deduction based on the mileage rate is simple: Multiply the number of business miles with the mileage rate, 58¢.

Every one hundred business miles equals $58 in 2019 (100*0,58).

Which types of business transportation qualify for deduction?

There's no upper limit to how many miles you can claim a deduction for as long as you drive them for business. There are a few more things to consider though, and we've compiled a brief list. 

 

Types of transportation that are considered business:

  • Traveling between two different places of work
  • Meeting clients and going on customer visits
  • Running errands for business

 

Types of transportation that are NOT considered business:

  • Commuting from your home to your place of work
  • Carrying tools does not make a commute a business trip
  • Displaying advertising on a car does not make driving it a business trip

 

For cases in which you have no place of work, where your home qualifies as your place of work, carpooling, and more, check out the IRS's own publication on transportation.

Which cars or vehicles can I use?

The standard mileage rate covers the use of specific vehicles, namely: cars, vans, pickups, or panel trucks. 

Finally, don't forget separately deductible expenses!

Whether you opt for one method or the other, you can still deduct parking fees (except fees from your place of work) and tolls that are attributable to business drives. 

That's it for our guide on the basics of deducting mileage for self-employed in the US. We hope we've been of assistance :)

Happy tracking!

 


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This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied upon for, legal, tax or accounting advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal, tax or accounting advisor.