Mileage Deduction Explained

What Is a Mileage Deduction?

A mileage deduction allows individuals and businesses to reduce their taxable income by accounting for the business use of a personal vehicle. Claiming mileage on taxes is possible when a vehicle is used for business, medical, charitable, or, in certain cases, moving purposes.

Deduction Methods

There are two primary methods to calculate deductible vehicle expenses:

1. Standard Mileage Rate

This method involves multiplying the total business miles driven by the IRS-established standard mileage rate. The rate is updated annually and encompasses expenses such as fuel, maintenance, depreciation, and insurance.

Eligibility Criteria:

• The vehicle must be owned or leased by the taxpayer.

• The standard mileage rate must be chosen in the first year the vehicle is used for business.

• The taxpayer must not have claimed depreciation deductions other than straight-line depreciation.

• The vehicle must not be part of a fleet of five or more vehicles used simultaneously.

2. Actual Expense Method

This approach requires detailed tracking of all actual vehicle-related expenses, including:

• Fuel

• Maintenance and repairs

• Insurance

• Registration fees

• Depreciation or lease payments

The deductible amount is calculated based on the percentage of total vehicle use that is for business purposes.

Recordkeeping Requirements

To substantiate mileage deductions, the IRS mandates maintaining accurate and timely records. Essential information includes:

• Date of each trip

• Purpose of the trip

• Starting point and destination

• Beginning and ending odometer readings

• Total miles driven per trip

Records should be kept contemporaneously, meaning they should be recorded at or near the time of the trip. If the trips are very obviously forged after the fact, the IRS can issue a penalty and revoke your deduction.

Non-Deductible Mileage

It’s important to note that commuting miles—the distance traveled from home to the regular place of work—are not deductible. Only mileage incurred for business-related activities beyond the regular commute qualifies for deduction.

Additional Considerations

• Parking Fees and Tolls: These are deductible separately from the standard mileage rate, provided they are business-related.

• Charitable Mileage and Medical Mileage: Different rates apply for mileage driven for charitable or medical purposes. These rates are also set by the IRS and are subject to annual updates.

Note that there are many deduction opportunities available for self-employed people. Look for them on official platforms or a deduction finder tool covered in our Everlance review.

For the most current mileage rates and detailed guidelines, refer to the IRS’s official publications or consult a tax professional.

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