On this page, we cover the various ways in which mileage deduction manifests as part of various self-employed tax states, addressing the question “what can you claim on taxes?” along with other tax deductions that are common when you drive your vehicle for business and choose an expense driven method over the IRS’s standard mileage rate.
There are many tax write-offs for self-employed persons, but when it comes to mileage, you must first determine what method you wish to use: the actual expenses method, or the standard mileage rate. It is only through doing this that you can understand how to write off business expenses or how to write off a car for business in an appropriate way.
Mileage Deduction Rules for Self-Employed Workers
The actual expenses method and the standard mileage rate function in very different ways. However, one thing that remains true for both methods is that you must log your mileage as a self-employed person – you also must submit comprehensive logs to the IRS that meet certain requirements.
Let’s examine those requirements:
- You must record your mileage at the beginning and end of each year. Contrary to popular myth, it is not necessary to do so every trip or even every month.
- All of your trips must be specified as either business or personal. Commuting to and from your workplace is considered a personal trip.
- Your logs must be logically consistent – meaning that they must contain no errors and your total mileage numbers need to align with your odometer readings.
The Two Calculation Methods
Let’s take a look at the actual expenses method and the standard mileage rate in more detail, addressing questions like “what can I write off on my taxes?” or “what expenses are tax-deductible?” more succinctly.
The Actual Expenses Method
With the actual expenses method, self-employed persons must keep track of all receipts relating to the operation of a vehicle, and these receipts must be itemized properly. These self-employed tax deductions are numerous, so let’s lay them all out.
An Overview of Self Employment Tax Deductions
Under the actual expenses method, the following expenses can be claimed – these are attributable to the portion of miles you do with your vehicle that are for business purposes:
- Car depreciation or vehicle depreciation
- Gas and oil
- Repairs and servicing
- Insurance premiums
- Car registration fees
- Licensing fees
- Lease payments
Can I Deduct the Purchase of My Vehicle for Business?
If you use your vehicle purely for business purposes, you can indeed deduct the entire cost of ownership and operation. If, on the other hand, you use your vehicle for both personal trips too, then you may only deduct the cost of its business use.
NOTE: Although the IRS doesn’t require personal trips in your mileage log, it’s strongly recommended that you include them because it will provide clarity for both yourself and the IRS since you need to separate your total business mileage, total personal mileage, and total commuting mileage for the year.
Also, logging your personal trips boosts the proficiency of MileageWise’s built-in IRS auditor function, which you need for an IRS-Proof result.
The Standard Mileage Rate
The standard mileage deduction is the most commonly chosen method for self-employed persons – it is set by the IRS for tax years (usually in each December for the upcoming year ahead) and incorporates tax write-offs for small businesses and independent contractors alike.
In 2023, the rate is 65.5 cents per mile driven, which is a further increase from 2022’s mid-year change by the IRS (the 62.5 cent-per-mile rate was in effect in the second half of 2022).
It factors in all relevant self-employed tax deductions claimable under the actual expenses method – taking a general approach to the cost involved in the operation of a vehicle.
Let’s take a look at an example:
Rebecca is self-employed as a consultant, and as part of her business, she has to visit a lot of clients and run a great deal of errands. In 2021, this meant that Rebecca did a total of 16,000 business miles – qualifying her for $9,680 in tax deductions if she does the same amount of mileage in 2022. Again, this figure incorporates the IRS’s assessment of all the current market costs of operating a vehicle encapsulated in one mileage rate.
NOTE: The charity mileage rate has steadily been 14 cents per mile, while the IRS increased the federal mileage rate for medical and moving expense (the latter can only be used by active army members) to 22 cents per mile in 2022 (it had been 18 cents per mile for several years).
Actual Expense Method vs. Standard Mileage Rate: Which Method is Better?
What’s best really depends on you and your costs. If you want to determine how to write off business expenses for mileage in an optimal way, there are a number of considerations to make. Firstly, what kind of vehicle do you drive? Secondly, how many costs are associated with your vehicle on a regular basis outside of gas and oil?
To illuminate the comparison thoroughly, we’re going to use some more examples:
Adam drives a Corvette C3 – a classic by anyone’s standards. Adam drives the beast of a car to meetings he has with other entrepreneurs, being an independent investor himself. It’s fast on the road and reliable too – there’s just one issue: the car is an absolute fortune to maintain.
Most of Adam’s expenses come from servicing, insurance premiums, and the replacement of parts; which can certainly prove expensive considering that the parts on such a vehicle are hard to find. Very little of his expenses relate to actually driving the car, and his maintenance costs come out way ahead of typical independent contractors or self-employed people.
For this reason, undoubtedly his best mileage tax method for him is the actual expenses method – this will result in more money back from the IRS.
Sally drives her Toyota Corolla around Denver for her work as a private detective, and her work involves a lot of mileage. Most of Sally’s costs are related to gas and oil, which is partly because her Corolla is reliable and rarely needs servicing. It is because of these reasons that Sally’s best choice is the standard mileage rate – her expenses are nothing compared to Adam’s, but she does do a great deal of mileage for work.
Easy Methods of Mileage Tracking
To keep track of your mileage properly, you need a mileage log. You could use a paper-based log or Excel, but you would really just be crippling yourself, wasting unnecessary time.
With MileageWise’s app, you can really stay on top of your logs – we offer manual tracking and 3+1 auto-tracking methods. We’re also proud to present our more niche cutting-edge features, like our AI-based AdWise Wizard technology, which allows the reconstruction of your mileage log if you need to prepare patchy logs for the IRS in a timely manner.
We’d love to hear from you and help in any way we can.