Self-Employed Mileage Deductions Rules
In this article, we'll go through the rules surrounding mileage deductions for self-employed in the US, and explain how to calculate and keep track of self-employed deductible mileage and expenses.
As a self-employed taxpayer, you can deduct expenses from 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 from the total. We'll get to how you can keep track of that later.
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Two ways of calculating mileage deduction for self-employed
There are two methods of calculating your mileage claim as self-employed for tax deduction purposes. Each way has its own rules for deducting mileage as self-employed.
The standard mileage rate method
First, you can claim a deduction per business mile driven. This is considered to be the simpler of working out self-employed mileage deductions, as the rate covers all expenses of owning and running your vehicle for business purposes. The IRS sets the rate for each calendar year. The mileage rate for 2023 is $0.655 or 65.5¢ per mile for business. Note that this rate is applicable from January 1, 2023 until December 31, 2023. 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 the actual expenses related to owning and operating your vehicle, such as depreciation, gas, repairs, insurance, etc. The IRS has an updated list of what business owners and self-employed can deduct under the actual expenses method. Expenses you can deduct include:
- Lease payments
- Gas and oil
- Registration fees
- Parking fees and tolls
- Garage rent
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 mileage (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.
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Can I use the standard mileage rate method?
To qualify for the IRS standard mileage rate method, 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
- 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). However, you can switch between the vehicles.
I lease the car
- 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 this method, 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.
Types of transportation that qualify for self-employed mileage deductions
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:
- Driving between two different places of work
- Driving from your home to a temporary place of work
- Meeting clients and going on customer visits
- Running business-related errands
Types of transportation that are NOT considered business:
- Commuting from your home to your permanent 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.
Records you need to keep for self-employed mileage deductions
In order to claim mileage deductions for self-employed, you must keep adequate and timely records of your mileage as proof. You must also keep all records and receipts for at least 3 years from the date you file your tax return.
Mileage tracker apps like Driversnote are your best friend here - they help you track mileage automatically so you don't miss any trips, help you create compliant mileage logs and will keep your documentation safe.
Read below to find out the records you need to keep according to the mileage deduction method you choose.
If you use the standard mileage rate method
You must keep a timely log of your business mileage. The log should contain details of each business trip, including the date, mileage, destination and purpose of the trip. You should also log your total mileage for the year.
Keep in mind that if you use a vehicle for both business and personal use, you must record all mileage in order to work out the business use of the vehicle.
If you use the actual expenses method
You will need to record all business and personal mileage in order to work out the business use of the vehicle. Furthermore, you must keep all receipts associated with owning and running your vehicle in order to claim actual expenses.
If you drive your vehicle for business purposes 60% of the time, you will be able to claim 60% of your vehicle’s actual expenses for the year.
How to automate your mileage logbook
IRS Mileage Guide
- Current Mileage Rates
- How To Claim Your Mileage On Taxes In 5 steps
- Mileage Log Requirements
- Calculate Your Reimbursement
- For Self-Employed
- IRS Medical And Charitable Mileage
- California Mileage Reimbursement
- For Employees
- For Employers
- IRS Mileage Rate 2022
- Is Reimbursement Taxed?
- How The IRS Mileage Rate Is Set
- IRS Mileage Rate 2021
- Mileage Rates 2020