How to Deduct Mileage for Taxes

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What is mileage deduction?

It is a tax write-off that is used to lessen the cost of running a personal car for business reasons.

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There are two types of ways to calculate the mileage deduction. One is the Actual Expense method (AE), and the other is the Standard Mileage Rates (SMR).

With the Actual Expense method, you need to keep track of all the expenses of running the car. You will then need to sift through the documentation to get the expenses that you incurred when running errands for the business.

The Standard Mileage Rates method is prescribed by the Internal Revenue Service (IRS) which puts into account factors such as wear and tear, gasoline price etc. to come up with a standard rate.

The rate changes now and then. As of 2018, the following are the prevailing rates:

Rate per mile For Which Purpose?
54.5 cents Business drives
18 cents Medical and moving drives
14 cents Charity drives

According to IRS, every taxpayer should have records of miles driven for business for the last five years. Below are the rates for the previous three years.

Year Rate Per Mile Dates Covered by the Rate
2017 53.5 cents 1/01/17 – 12/31/17
2016 54 cents 1/01/16 – 12/31/16
2015 57.5 cents 1/01/15 – 12/31/15

How to Calculate Mileage for Taxes

Use a smart technology such as GOFAR to track and log your mileage.

GOFAR helps you to find your car engine’s sweet spot and then guides you on driving efficiently to save fuel and reduce wear on your brakes.

Other areas where the GOFAR app and device can help you include;

  • Tracking the car mileage for tax deductions
  • Alerting you when the car has a fault
  • Explaining the car faults in plain English
  • Reminding the driver of ReGo & Insurance
  • Connecting drivers to top-rated mechanics and parts suppliers
  • Saving fuel by finding the engine’s sweet spot

GOFAR’s app keeps track of all the business drives throughout the year to help you calculate your allowable mileage deductions.

As of 2018, you can write off 54.5 cents for every business mile you drive.

Example of how to calculate business mileage

If a salesman drove 10,000 miles for business in 2018, what is his mileage deduction for the year using the SMR? 54.5 cents x 10,000 = $5450 (This is the amount that the salesman will deduct from his tax returns).

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What are Business Drives?

  • Errands/supplies – Any business related around that you take is considered a business drive. Examples of such a business drive include visiting the post office, going to the bank, getting supplies from the local store etc. Most self-employment business owners forget these little trips, but they can add up to a huge deduction at the end of the year.
  • Business meals and entertainment – If you drive to meet a vendor or a client, the IRS consider this a business drive. Examples of such a drive include meeting a client over lunch, getting coffee with a vendor, entertaining your business colleagues during the happy hour etc.
  • Airport/travel – When you make business travel to and from the airport, the IRS considers this our work trip and hence it is an allowable deduction.
  • Odd jobs – you have a side job such as babysitting, lawn mowing, and pet care you can deduct the miles from your taxes.
  • Customer visits – Driving from your office to a client site to meet a customer or client qualifies for mileage deduction.
  • Temporary job sites – If you drive from home to any temporary job, you qualify to log the mileage for tax deduction purposes. The IRS considers any job that lasts less than one year is temporary.
  • Job seeking – if you are driving to and from home looking for a job in the same industry as your previous job, then you can deduct the mileage from your taxes.

Can You Deduct Commuting to Work Mileage?

As a rule, you cannot deduct your mileage to and from work. According to the IRS, the first trip from your house and the last trip back to your home are not deductible mileage.

The rule holds even if you travel from very far to your office. Where are you living is considered a personal choice and hence a personal expense.

If you work when you’re commuting, it will still be considered as commute, and it is not an allowable deduction. Include listening work podcasts, making business calls, replying to emails etc.

How to Use a Home Office to Beat the Commuting Rule

One way to get around the IRS commuting rule is to have a home office from where you can commute to your other business locations. Such a commute is an allowable deduction according to the IRS.

For your home office to qualify as your primary place of business, you have to prove to the IRS that you earn a larger percentage of your income from there and you also perform your management and administrative cost from the home office.

How to Claim Mileage on Taxes

If you use the standard mileage rate for your mileage deductions, you need to multiply your total number of business drives by the applicable rate for the year.

You can add the business packing and tools to that amount and then deduct it on your file returns form.

Mileage deduction is input on the Schedule C line 9 of the returns file.

Apart from demanding the reading of your odometer when you started to drive for business, the IRS will also want you to produce proof that indeed you drove for work.

For a W-2 employee, there are scenarios where you can write off you are business miles.

What is Mileage Reimbursement?

Mileage reimbursement is a situation where the client or the employer pays you acceptance rate for all the miles that you have driven for business.

What is Mileage Deduction?

Mileage deduction is calculated by multiplying the SMR rate by the total miles driven for business.

The IRS does not require the clients or the employers to reimburse for business mileage. However, many businesses practice mileage reimbursement to keep and attract talent.

Is There a Limit to the Number of Miles You Can Claim?

The IRS has no maximum amount of mileage you can claim as long as you can substantiate them.

However, there are a few red flags that will put you in trouble with the IRS including;

  • filing a round number such as 10,000 miles
  • claiming 100% of all your mileage for business
  • claiming an unusually high number of business miles

Can You Claim Tolls on Your Taxes?

You can deduct parking and toll-related the cost of your tax as long as you have kept proper records of the same expenses.

Can You Claim Vehicle Expenses on Taxes?

Although the standard mileage rate put into consideration a lot of costs that are related to running your vehicle, it does not include all the cost.

If you use the standard mileage rate to deduct your mileage, you can also deduct the following car-related expenses:

  • Car loan interest
  • Parking fees and tolls
  • Property tax
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