Business Mileage Deduction 101: A Beginners Guide

What Is Mileage Deduction?

Mileage deduction is a term used by the IRS to refer to the deductible expenses incurred by car owners who operate their private vehicles for work.

According to the IRS, if you use your car for business purposes, you can deduct the cost of operations from your taxes. This is usually referred to as a car allowance ato.

However, if you use your vehicle for both personal and business purposes, you can only deduct the costs associated with business use.

As a taxpayer, you have the option of using the standard IRS mileage rate to calculate your mileage deduction for a given tax year. Alternatively, you can also choose to calculate the actual cost of using your vehicle rather than using the standard rate.

What is the IRS Mileage Rate for 2024?

The IRS mileage rate provides a guideline for mileage reimbursement and tax deduction. It is based on an annual study of the fixed and variable costs of owning and operating a vehicle in the USA.

The rate is also subject to revision every year to better align with the prevailing financial and economic circumstances.

According to Notice 2024-08 issued by the IRS, the standard mileage rates for 2024 are:

• $ 0.67 per mile for business usage
• $ 0.14 per mile for charitable work
• $ 0.21 per mile for medical transport expenses
• $ 0.21 per mile when moving for military personnel

What Do You Need to Know to Deduct Your Business Mileage?

To be able to claim your business mileage deductions, you must be able to provide supporting proof and documentation. You must also be able to show the amounts you paid for the business travel.

Some of the key records you need to keep include:

• The cost of the car and any improvements.
• The mileage for each business trip.
• The date you started using the vehicle for business.
• The total miles you drove for the year.

You should also ensure that all the business driving records are:

1. Complete – show the date, mileage, location, actual expense, and business purpose of the drive.
2. Accurate – keep a backup of all personal expenses on top of your business expenses.
3. Timely – record the costs at the time of the payment, not later.

To ensure that your business mileage records meet the above criteria, you should consider using a mileage tracker.

GOFAR is a mileage tracking app that offers automated tracking with easy report generation at the click of a button.

What Are the Limits for Business Mileage Deductions

Although the list of allowable mileage deductions is quite extensive, there are limits to what the deductions can cover.

For instance, you cannot claim a deduction for:

• Personal use of the car. You must separate personal and business use of your vehicle. Personal expenses are NOT deductible.
• Commuting purposes – that is driving between your home and place of work.
• Transporting business material while commuting. The IRS holds that this DOES NOT make the commute deductible as the drive is still primarily a commute.
• The use of your vehicle for advertising. According to Publication 463:

“Putting display material that advertises your business on your car doesn’t change the use of your car from personal to business use. If you use this car for commuting or other personal uses, you can’t deduct your expenses for those uses.”

What are the IRS Rules on Mileage Deductions?

The IRS allows for two different ways to deduct for business mileage. The method you choose depends on your situation and the IRS requirements and limitations.

1. The Actual Expense Method

Working out your actual expense is the most accurate way to determine your business mileage deductions. It involves tracking all eligible mileage and related expenses. You can then claim an itemized tax deduction or reimbursement from your employer.

2. Standard Mileage Deduction

The standard IRS mileage rate is the easiest method to work out your mileage deductions. Simply multiply your total mileage for the year with the standard IRS rate for that year.

You must also observe the following requirements to use the standard mileage rate:

• You cannot claim a depreciation deduction for the car using any method other than straight-line.
• You cannot operate more than four vehicles at the same time as in fleet operation.
• You cannot claim the special depreciation allowance on the car.
• You cannot claim a Section 179 deduction on the car.
• You cannot have claimed actual expenses for a car you lease.

In addition to claiming the standard IRS mileage deduction, you can also deduct several other driving costs. These include:

• Interest expenses on your car loan based on how long you use it for business purposes.
• Business-related tolls and parking fees separate from the IRS mileage rate.
• The business part of personal property taxes on motor vehicles.

Business Travel vs. Commuting Expenses

What is Business Travel?

Business travel refers to expenses incurred by business owners and employees when traveling for work purposes.

To deduct business travel expenses, you must be able to prove that the trip was solely for business purposes. Commuting expenses and personal driving expenses are not allowable business travel expenses.

Some of the allowable business travel expenses include:

• Transportation by car, airplane, train or bus to a business location.
• Taxi, shuttle or limo expenses.
• Baggage and shipping of work-related material.
• Business mileage in your car or a rental car.
• Lodging and meals for overnight trips.
• Business-related phone calls while on a business trip.
• Dry cleaning and laundry expenses.

Note that it is vital that you maintain a detailed record of these expenses. The IRS can decline your deductions claim without proper documentation.

An effective way to keep track of your business mileage is through the use of an IRS-compatible mileage tracking app like GOFAR.

What is Commuting?

Commuting refers to the travel between your principal place of residence and your place of regular work. Commuting can also occur when you drive from your home to a place where you’ve worked before, or you expect to work for more than a year.

The IRS will also consider a drive from your home to conduct business a commute and not a business trip.

However, when you carry stock or inventory from your home to the office or primary work location, the IRS may regard this as a business drive.

In this instance, you can claim mileage deductions on expenses such as the cost of renting the trailer and other haulage-related expenses.

Generally, your commute is not tax-deductible. Commuting expenses are daily travel expenses and not part of any deductible business expense.

However, you can get around this rule by converting part of your home into a qualifying home office.

What If You Work During Your Commute?

Unfortunately, working during your commute will NOT convert the trip into a deductible business drive. Also, having advertising on your car will NOT convert your commute into deductible business mileage. The IRS will still consider this a commute, not tax-deductible mileage.

What is Deductible for International Travel?

The IRS has special considerations for business expenses for international travel. If you can meet at least one of these three conditions, then you might be able to deduct all your travel expenses:

• The trip requires that you be away from the U.S. for at least a week and that you spent less than 25 percent of the expenses on personal purchases.
• You can prove that a vacation wasn’t a major consideration for the trip.
• You had, according to the IRS, “substantial control” over the itinerary.

Note that although this article gives you some information about the IRS’s regulations on mileage deductions, it is not exhaustive.

You can refer to the IRS website for more information.

You should also consult a tax professional before you claim any business mileage to avoid any run-ins with the IRS.

How to Keep Track of Your Mileage

The IRS requires detailed information about your mileage expenses to approve any deductions. If you use your private car for work, you must distinguish between your personal and business miles as only the latter is deductible.

This is where GOFAR comes in. GOFAR offers an automated mileage tracking app that makes tracking and recording your business mileage a breeze.

It offers you the ability to log all your mileage and distinguish between personal and business travel.

GOFAR is also IRS compatible with easy access to your current expense claim summary for a hassle-free deductions claim.

Visit gofar.co to download the GOFAR mileage tracking app today.