Navigating Mileage Deductions for Self-Employed Professionals in the US

As a self-employed professional in the US, keeping track of your business-related mileage is essential for tax purposes. Mileage deductions can significantly reduce your taxable income and help you save money on taxes. However, navigating the complex rules and regulations surrounding mileage deductions can be challenging. In this blog post, we’ll explore everything you need to know about mileage deductions for self-employed professionals in the US.

What is a Mileage Deduction?

A mileage deduction is a tax deduction that allows you to deduct the cost of using your vehicle for business purposes from your taxable income. The Internal Revenue Service (IRS) allows self-employed professionals to deduct either the actual expenses incurred for using their vehicle for business purposes or a standard mileage rate.

The standard mileage rate is a fixed rate set by the IRS each year, which can be used instead of deducting the actual expenses. The standard mileage rate for 2023 is 65.5 cents per mile. The IRS usually updates this rate on December.

What Qualifies as Business Mileage?

To qualify for a mileage deduction, the miles driven must be for business purposes. The IRS defines business mileage as any mileage driven while performing tasks related to your business. This can include driving to meet with clients, traveling to a job site, or running business-related errands.

However, commuting from your home to your office or job site does not qualify as business mileage, as it is considered a personal expense. Similarly, driving to and from your place of business to get lunch or run personal errands does not qualify as business mileage.

Keeping Accurate Records

The IRS requires that you keep accurate records of your business mileage to claim a deduction. You should keep a detailed record of the date, destination, purpose, and number of miles driven for each business-related trip. You can use a mileage tracking app, such as Psngr, to track your mileage automatically and ensure accuracy.

If you choose to use the standard mileage rate, you must also keep a log of the total miles driven during the tax year, as well as the total miles driven for business purposes.

Deducting Actual Expenses

If you choose to deduct the actual expenses incurred for using your vehicle for business purposes, you can deduct expenses such as gas, oil changes, repairs, insurance, and depreciation. You can calculate the deduction by multiplying the total actual expenses by the percentage of miles driven for business purposes.

For example, if you drove a total of 10,000 miles during the tax year and 7,000 miles were for business purposes, you could deduct 70% of your actual expenses.

Deducting Standard Mileage Rate

If you choose to deduct the standard mileage rate, you can simply multiply the total business miles driven during the tax year by the standard mileage rate. For example, if you drove 10,000 miles during the tax year and 7,000 miles were for business purposes, you could deduct $4,585 (7,000 x $0.655).

However, you cannot deduct both the actual expenses and the standard mileage rate for the same vehicle. You must choose one method or the other.

Leased Vehicles

If you lease a vehicle for business purposes, you can still deduct your mileage expenses. However, the deduction may be limited based on the lease agreement. You can deduct either the standard mileage rate or the actual expenses incurred, but you must prorate the expenses based on the percentage of business use.

For example, if you leased a vehicle for two years and used it 80% for business purposes and 20% for personal use, you could deduct 80% of the actual expenses or the standard mileage rate for the 80% business use.