Did you know that if you use your personal vehicle for business purposes (other than commuting to and from the office), then you can claim your mileage?
If you're a self-employed individual, the deduction is incredibly valuable. As per the 2019 rates, if you put 100,000 work miles for a few years you can get $58,000 worth in deductions!
This brings us to the question of how does the mileage rate work, and how do you claim it? In this article, we take you through everything you need to know about the mileage tax deduction in 2019.
UPDATE: Your guide to 2020 IRS mileage rate
What is the 2019 IRS mileage rate?
The IRS per-mile rate is $0.58 per mile driven in 2019.
Although it seems small, those miles add up quickly. A qualifying 250-mile business trip is worth $145 under the mileage deduction.
That $145 isn't much if you don't otherwise need to itemize your tax return. However, if you have a list of other deductions and use your car for business use regularly, then it could be well worth it.
Business miles aren't the only deductions. Keep in mind that you also get deductions for medical purposes ($0.20 per mile,) and miles driven in service of charities ($0.14 per mile.)
There is also a deduction for moving expenses. However, the 2017 Tax Cuts and Jobs Act eliminated the deduction for everyone but active-duty military members following relocation orders.
I always use my vehicle for work purposes - What should I do?
If your personal car is essentially a business vehicle, then you can earn more than mileage.
You also have the option of calculating the actual costs of using your vehicle rather than relying only on mileage. However, if you also use it for personal errands, you need to strictly deduct the cost of usage for business purposes.
What's included in the actual expense method? You should factor in:
- Gas (keep your receipts)
- Oil changes
- Tires and servicing
- Registration and tax
- Depreciation (or lease payments)
- Car washes and detailing
You can read the whole IRS topic here.
Keep in mind that this only applies to self-employed people. Ideally, if you are employed and you use a car almost exclusively for business, then you either drive a company car or get reimbursed by your employer. Unfortunately, the deduction doesn't apply to your income taxes anymore.
Note: If you are a W-2 employee, the government's advice is to negotiate reimbursements with your employer. You won't be able to deduct them again until 2026. However, that assumes Congress doesn't renew the tax reform law. The rules could also change if there is a repeal of the law before it expires.
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What miles count for the mileage tax deduction?
To get the mileage tax deduction, the mileage needs to be for business purposes - and you need to be able to prove it.
In the past, commuting didn't count. It was a personal expense, and the mileage was yours to bear - Just like your morning run to Starbucks is your personal expense!
However, you could (and still can) claim it if you use your car for work-related activities like:
- Picking up orders or making deliveries
- Visiting sites and attending client meetings
- Driving to the airport for business trips
- Taking your vehicle to mandatory conferences
In 2019, things change if you're self-employed. Self-employed people can effectively write-off all commuting, but you need to keep strict records. However, the type of trips you can include also depends on where you claim your office is.
If you claim a home office on your taxes, then your first and last trips each day are considered to be non-deductible commuting, just like if you drove to an office as an employee. You can write off miles between different clients but not to the first and from the last client.
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How to maintain IRS-compliant records?
The mileage deduction is a real boon to self-employed people and small businesses. However, you need to keep strict records of your mileage (or expenses) to enjoy the deduction.
At the start of each tax year, you need to decide how you intend to claim your deduction. Additionally, you need to record items to support your claim.
To write off your miles, you need an IRS-compliant mileage log. It needs to include the odometer at the start and end of the year. You also need to include all relevant trips and note:
- The odometer at the beginning and end of the journey
- Start location
- End location
- Purpose of the business trip
- Date of the business trip
1. There's no rounding or estimates allowed.
2. You can't fill these details at the end of the year - or even monthly. You should be filling them in at least weekly, if not every time you use the car.
3. If you choose the actual expense deduction, you don't need to log your miles. But you do need receipts for everything: every time you fill up, change your oil or pay for anything related to your car. You'll also need the relevant service documentation in addition to your receipt.
4. You don't need to submit the expense reports and mileage logs with your taxes. However, if the IRS chooses to audit you, then these records will save you a lot of pain and suffering.
5. If the IRS audits you and deems that your deductions don't count, then you need to pay them back - with interest and fees!
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Do you qualify for the mileage tax deduction?
The mileage tax deduction is a real asset to self-employed people and small business owners. But claiming it requires massive amounts of paperwork, receipts, logs, and data. Yet it is also an avoidable process. Failing to keep these records means the IRS can snatch the deduction away and force you to repay what you owe. This could be catastrophic to the growth of your business.
At Fyle, we make sure you never lose track of your expenses. Our software makes sure your mileage and receipt records are up-to-date and even earns your time back. Schedule a demo to understand how much you can save!