If you’re self-employed, you can take a tax deduction for miles driven either as a standard deduction or based on your actual costs. The mileage rate is set each year by the IRS. The standard mileage deduction was $0.56 per mile in 2021, but has jumped up to $0.585 per mile in 2022. However, who can take the deduction looks a little different these days. Before the Tax Cuts and Jobs Act, employees could take the mileage deduction if they traveled for work and weren’t reimbursed by their employer, but the TCJA changed that.
There are still plenty of taxpayers who benefit from the mileage deduction, though. Here’s what you must know.
Who can Take the Mileage Deduction?
While employees can no longer take advantage of the mileage deduction, these taxpayers usually can:
Self-employed business owners
Some government officials (working fee-based)
It’s also important to understand who can’t take the mileage deduction. This includes:
Businesses with more than 5 vehicles (you must use actual expenses)
Corporations, including S-Corps (but they can reimburse the owner for personal vehicle use at the standard IRS rate)
How to Claim the Mileage Tax Deduction
If you fall into one of the categories above, you may be eligible to take the mileage tax deduction, but for now, we’ll focus on self-employed taxpayers.
If you’re self-employed and own your own business or are an independent contractor, you’ll provide your mileage information on Schedule C.
You must keep track of the miles driven for business purposes throughout the year and have important information about your car’s make and model and the dates it was placed into service for your self-employed business.
The key is knowing when your mileage begins. Typically, it doesn’t start until you reach your first destination, and it never starts when you drive to or from the office if you don’t work from home.
For example, if you have an office that you drive to, and then you meet clients from there, you start counting mileage after you arrive at the office. If you run a rideshare business, your mileage starts from the moment you pick up your first passenger and it stops after your last passenger is dropped off (your trip home doesn’t count).
Proof for the Deduction
You have the option to take the standard deduction ($0.56 per mile) or the actual deduction. If you choose the actual deduction, you’ll need more paperwork and receipts to prove your mileage and expenses because you can deduct things like car insurance and car repairs.
If you take the standard deduction, you still need a log of your mileage. Make it easy on yourself and find a method you’ll use consistently. Whether you leave a log in your car and mark your mileage each day, you use an app on your phone, or you keep a log on your computer, the key is to keep a log in case the IRS requests it.
Deducting mileage on your taxes can be a great way to lower your tax liability when you’re self-employed. Like any expense, you must keep a careful record of your mileage and expenses in the event the IRS needs them.
Keep careful track of your mileage, know your expenses, and decide which of the deductions, standard or actual make the most sense for your business.
For more information or guidance, please reach out to the tax experts at Henson and Murtha CPAs for a complimentary consultation.