Mileage for a company or business is the distance traveled while conducting company or business-related activities. These can include:
- Attending a business meeting
- Traveling to meet potential clients
- Picking up supplies for the company
- Running errands on behalf of the company
The Internal Revenue Service (IRS) allows businesses to write off the cost of driving to work using two methods: deducting part of your actual driving expenses (actual expenses method) or applying the standard IRS mileage rate to your deductible business drive.
The standard mileage rate is arrived at after calculating the fixed and variable costs of operating a car under prevailing economic conditions. This rate is adjusted annually.
The IRS allows you to pick whichever business mileage deduction option you prefer, but with a few caveats.
For instance, you can’t use the standard IRS mileage rate if your business uses five or more vehicles. You must also not have claimed a depreciation deduction for the affected vehicle using any approach other than the straight-line method.
Additionally, you must use the standard mileage rate the first time your car is available for business use if you’re interested in switching to the actual expense approach later.
What if you’re leasing your vehicle? If you opt for the standard mileage rate approach, you have to use it for the whole lease period, even after you renew the lease.
Follow these guidelines and you’ll be set to choose between the standard mileage rate and the actual expenses method.
However, you still need to consider what you can claim and can’t claim when it comes to company mileage before making a conclusive decision.
3 Things You Can Claim
The IRS allows you to deduct certain business-related travel expenses incurred during the business use of your car.
1 – Business Miles
Any drives you make for business-related purposes are considered business miles and, therefore, deductible. These include drives to:
- Meet customers or clients
- Get from your home to a temporary workplace
- Business meetings away from your usual workplace
Other work-related events such as supply runs and driving between temporary job sites for the same business also contribute to your business miles.
If you opt to use business miles to claim your deduction:
- Subtract any personal miles from the total mileage used.
- Multiply the resulting business miles by the standard mileage rate.
- Take the result as your deduction.
Since the standard mileage rate includes the cost of gas and maintenance, you should either use it or the actual expenses method—not both.
Bonus Tip: You can use the standard mileage rate if you own or lease your vehicle. However, you must use the actual expense approach if you’re renting the vehicle.
2 – Actual Expenses
Going the actual expenses route requires you to determine what it actually costs you to operate your vehicle for the duration it’s in business use.
You’ll need to keep accurate records for the following qualified expenses:
- Gas and oil
Other expenses you can track include registration fees, lease payments, interest on your auto loan, and depreciation.
Remember, you can opt for the standard mileage rate in the year you place your car in service, then switch to the actual expense method later.
But if you do so before your vehicle is fully depreciated, you’re required to use the straight-line depreciation over what’s estimated as your vehicle’s remaining useful life. Naturally, there are limits on the depreciation you can deduct.
Remember to ensure that all reported expenses can be attributed to the business miles portion of the total miles driven. Inaccurate reporting or attempting to double-deduct the same expenses (like deducting both mileage and gas and maintenance expenses) can trigger an IRS tax audit.
Unsure whether an expense is a valid deduction? Speak with your accountant or tax advisor. They’ll help you navigate through the complex tax code and determine what expenses you can claim.
3 – Separately Deductible Car Expenses
There are other vehicle expenses that can be attributed to business use, such as parking fees and tolls, which are separately deductible.
In other words, you’re permitted to fully deduct these (business-related) expenses whether you use the standard mileage rate or actual expenses.
Now, you might wonder whether to use the actual expenses method or the standard mileage one.
If you drive a lot for work, the standard mileage rate typically gives the highest deduction. However, the actual expenses method can be better if:
- You don’t use your car much
- Your car’s really gas-efficient
- Your car has had a lot of repair work done
The table below highlights some important considerations that can help you make the best decision.
|Standard Mileage (Business Miles)||Actual Expenses|
|Vehicle is expensive to maintain and a gas guzzler||✔|
|Vehicle is fuel-efficient, with little spend on maintenance||✔|
|You drive a lot for business||✔|
|Your car is new but depreciating fast||✔|
|You’re bad at keeping receipts||✔|
To be absolutely sure, track both your actual expenses and your mileage, then determine which expense method works best for you at the end of the year.
2 Things You Can’t Claim
Just as there are business use mileage deductions you can claim, there are also some expenses you can’t deduct. These include:
1 – Commuting Costs
The IRS defines commuting as driving back and forth between your home and main place of business.
So, if you have an office job and drive to work every day, the cost of that commute is not considered a business expense. In fact, any miles driven for personal reasons, such as running errands or going to the grocery store, don’t count as business miles.
The only time a commute from home to work is deductible is if you’re driving from a home office to either run business errands or visit another place of work.
However, your home must meet the federal standards that allow it to be treated as your principal place of business.
To prove your case about your home office being your primary location of work, you must at least:
- Show you regularly or exclusively use your home office to meet clients or customers
- Have a separate room or specific area in your home that’s exclusively for business
- Show you conduct the majority of your business tasks at your home office
2 – Unreasonable Expenses
There are certain unreasonable or questionable expenses you can’t claim to try to reduce your taxable income. For example, you can’t expect to write off renting a hotel room that’s within a reasonable distance from your home.
While you can deduct parking fees and tolls, any fines or penalties incurred from parking tickets are not deductible. Instead, these are considered personal expenses that you’re liable for.
Additionally, you can’t deduct the parking fees you pay to park your vehicle at your place of work. In this case, the IRS considers such fees to be part of your commuting expenses.
Remember, you can avoid unnecessary IRS audits when you don’t claim expenses that aren’t necessary to conduct business.
Keep Track of Your Mileage
Whether you decide to use the standard mileage rate or the actual expenses method to deduct your company mileage, keep accurate records.
The IRS requires you keep a detailed log of all business-related miles driven. This log should include:
- The date
- Starting and ending odometer readings
- Purpose of each business trip
If you decide to use the actual expenses method, you’ll also need to keep track of all receipts for vehicle-related expenses, such as gas, oil changes, and repairs.
By keeping accurate records of your company mileage, you can get the maximum deduction possible on your taxes.
Thankfully, there are excellent mileage tracker apps, such as GOFAR, that you can use to keep track of your personal and business mileage. In addition to logging every trip, GOFAR goes a step further by:
- Monitoring your vehicle’s health
- Tracking your (driver) performance
- Providing reminders for insurance and vehicle servicing
- Sending real-time feedback to a dashboard device and mobile app
Choose the GOFAR Mileage Tracker and experience the many reasons it gets high praise from satisfied clients, such as Ben:
“When it comes to monitoring your car’s health and performance, there’s nothing better than GOFAR, the clever device that connects your car to your smartphone.”
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