Mileage Deduction 101: How To Calculate Mileage For Taxes
If you drive your car or other vehicle for business purposes, you can take a mileage deduction of 53.5 cents for every mile you drive for work in 2017 (54 cents per mile for 2016). Here is everything you need to know in order to get the most out of your mileage write off.
IRS Mileage Deduction: What Drives Are Business Drives?
With the mileage deduction, the IRS only lets you deduct trips that are for business. The natural question is: what types of trips are considered business drives? We’ve put together this simple chart to let you know what drives are considered business by the IRS.
|Travel between offices
You can take this deduction for travel from your office or work site and you drive to a second place of business.
Driving for business-related errands qualifies. This can include trips like going to the bank, office supply store or post office. Additionally, these small trips add up quickly. Many business owners forget to keep track of these drives.
|Business meals and entertainment
Trips you make to meet with clients or vendors qualify for this deduction. This can include drives for dinner, coffee, drinks, etc.
The miles you drive to and from the airport for a business trip.
Drives to and from odd job locations can be written off. These can include side-gigs like babysitting, pet care, lawn work or more.
Driving from your office or other work site to meet with customers or clients for business qualifies.
|Temporary job sites
Driving from home to a temporary work location that you expect to last (and does, in fact, last) less than one year.
If you’re looking for work, you may deduct the drives to find a new job in your current occupation. Yet, you cannot take this deduction if you’re looking for a job in a new industry for the first time.
IRS Mileage Reimbursement Rules: Mileage Reimbursement vs. Mileage Deduction:
It’s important to note the difference between a mileage reimbursement and a mileage deduction. A reimbursement is when an employer or client pays you a certain rate for the miles you drive. The deduction is when you take a write-off for the miles you drove on your annual tax return.
The IRS doesn’t require employers or clients to reimburse you for mileage. Many do in order to maintain and attract workers but there’s no mandated federal mileage rate for non-governmental employees. The IRS does offer a mileage rate for the deduction and in 2017, that equals 53.5 cents per business mile.
Business Mileage Does Not Include Commuting
There are some strict rules on what makes up deductible business driving. The one that most people get in trouble with is commuting. This is never deductible because the IRS considers it to be a personal expense. Commuting occurs when you go from home to a permanent work location—either your:
- Office or other principal place of business
- Another place where you have worked or expect to work for more than one year.
Even if a trip from home to your office (or other principal place of business) has a specific business purpose—for example, to meet with a client at your office—it is still considered commuting and is not eligible for a mileage deductible if you start out from your home.
Working during a commuting trip doesn’t make it a business drive. Even if you make business calls on your cell phone, listen to work-related tapes or have a business discussion with an associate or employee, it’s still considered commuting.
Get Around the IRS Commuting Rule With A Home Office
One way to avoid the harsh commuting rule is to have a home office that qualifies as your principal place of business. In this event, you can take a mileage deduction for any trips you make from your home office to another business location.
For example, you can deduct the miles you drive from home to your second office, a client’s office or to attend a business-related seminar. The commuting rule doesn’t apply if you work at home because, with a home office, you never commute to work (you’re there already). Your home office will qualify as your principal place of business if it is the place where you earn most of your income or perform the administrative or management tasks for your practice.
Avoiding the Commuting Rule If You Go to a Temporary Work Location
You can avoid the commuting rule and still have your drives qualify for a mileage deduction if you travel between your home and a temporary work location. A temporary work location is any place where you realistically expect to work less than one year. It can be inside or outside of the metropolitan area where you live. However, if the location is inside your metropolitan area, this exception applies only where you have an outside office or other regular work location away from your home.
How To Calculate Mileage for Taxes?
You have two options for deducting your vehicle expenses: You can use the standard mileage rate or you can deduct your actual expenses. The standard mileage rate is by far the easiest to use.
With the standard mileage rate, you take the deduction of a specified number of cents for every business mile you drive. The IRS sets the standard mileage rate each year. The 2017 Mileage Rate is 53.5 cents per mile. To figure out your mileage deduction, simply multiply your business miles by the standard mileage rate for the specific year.
Example: Ed, a salesperson, drove his car 20,000 miles for business during 2017. To determine his mileage deduction, he simply multiplies his business miles by the applicable standard mileage rate (53.5 cents per mile in 2017). This gives him a total mileage deduction for the year of $10,700 (53.5 cents × 20,000 = $10,700).
How To Track Mileage for Taxes
The big advantage of the standard mileage rate is that it requires less record keeping. You do need to keep track of how many miles you drive for business and the total miles you drive, but you don’t need to record actual expenses for your car, such as gas, maintenance, and repairs.
Yet, keeping an accurate mileage log can be tedious, and the IRS requires those logs to be fairly detailed. To save yourself time and headache, be sure to review mileage logs the IRS didn’t accept and don’t make the same mistake. You can also use a mileage tracking app, like MileIQ, to make the process easy and ensure you’re in compliance.
Claiming Business Mileage on Taxes
To claim your business mileage for work on taxes, you’ll need to provide an itemized deduction. For self-employed workers, you’re going to claim your mileage on IRS Form Schedule C. Along with the value of your work miles, the IRS will also want to know your starting odometer reading, your commuting miles and your personal, non-commuting miles. If you’re a W2 employee, there are scenarios where you can still write off business miles. You can learn more about that on this article about mileage reimbursements.
Restrictions On The Standard Mileage Rate
If you choose the standard mileage rate, you cannot deduct actual car operating expenses—for example, maintenance and repairs, gasoline, taxes, oil, insurance and vehicle registration fees. All of these items, as well as depreciation, are factored into the standard mileage rate set by the IRS. However, you can deduct the interest you pay on a car loan, as well as parking fees and tolls for business trips (but you can’t deduct parking ticket fines or the cost of parking your car at your place of work).
There are some important restrictions on who can use the standard mileage rate. If you don’t qualify to use it, you must use the more complicated actual expense method. First, and most important, you must use the standard mileage rate the first year you use a car for business. If you fail to do so, you are forever stuck using that method for that car.
If you use the standard mileage rate the first year, you can switch to the actual expense method in a later year, and then switch back and forth between the two methods after that, subject to certain restrictions. For this reason, if you’re not sure which method you want to use for, it’s a good idea to use the standard mileage rate the first year you use the car for business.
MileIQ captures and logs your drives automatically while you focus on your business.
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