How Do I Figure Mileage Deductions for Taxes?

According to federal law, most businesses must reimburse their employees for one-way driving trips of more than 50 miles. In other words, you're liable to be reimbursed for any driving-related expenses that you incur during a round trip of more than 100 miles. Federal law also requires most businesses to reimburse employees who purchase plane tickets for work-related reasons. If you travel to a distant city on a business trip, it's almost certain that you'll be reimbursed for your travel-related expenses.

In addition, businesses are typically required to provide traveling employees with ongoing stipends. Known as "per diems," these payouts are generally used for meals and other "incidental9quot; expenses. Depending upon the policies of your employer, you could receive between $20 and $50 for your per diem expenses. You'll receive a payout for every day that you're away from the office.

Of course, these funds come with certain requirements and restrictions. Any travel-expense payouts that you receive from your employer must be reported as taxable income to the appropriate state and federal authorities. For federal tax purposes, the IRS treats mileage and per diem income as regular taxable income like interest, dividends and salary payments. Most states use the same framework to tax this sort of income. You'll use a Form 1099-MISC or other similar document to report your mileage earnings to the federal government.

There are two ways in which you can account for your mileage income. In most cases, you won't have a choice in this matter: Your employer will select the means by which it chooses to disburse travel-expense payments. However, it's useful to understand the difference between the two. This knowledge will come in handy when you calculate your tax liabilities at the end of the year.

The "standard9quot; method of calculating mileage payments is substantially more common. It's also simpler to understand. If your employer makes "standard9quot; mileage payments, you'll receive a flat rate for each mile that you drive. In most cases, this rate will range from 40 to 45 cents. You'll receive an additional flat-rate per diem payment on top of this mileage rate.

The "actual costs" method requires a substantial amount of input on your end. You'll need to keep careful track of the exact amount that you spend on food, gas and hotel expenses. Once you turn in these records to your employer, you'll be compensated according to the exact amount that you spent. In both cases, you'll report any such compensation as regular income.

One Very Important Deduction You Could be Missing on Your Taxes

This post is sponsored by MileIQ, however, all opinions and miles driven to Starbucks are 100% mine.

If you haven't been tracking your mileage, you could be missing out on some BIG tax deductions at the end of the year. Yes, you!!

Mileage deductions are typically thought of as a business-only benefit, but they're available to everyone depending on what you do or where you go. You just need to do two things….

  1. Know the rules for each deduction.
  2. Keep extremely detailed records for every trip you take.

Sounds like more hassle than they're actually worth, right?

Well, that's certainly what I used to think. Both Joseph and I have had plenty of opportunities to track mileage with all of our eligible business and personal trips….and believe me, it's not that we haven't tried.

We've kept notebooks in the car, cute little printables at home, and spreadsheets on Google Drive, but it finally became such a hassle to remember to record our mileage, that we basically shrugged it off and said it wasn't worth doing. Tracking mileage was basically one more thing to keep tabs on our already jam-packed to-do list.

Until our CPA gently reminded us how much we were missing out.

Now that I've realized what kind of impact mileage deductions have on our overall taxes, I'm done losing out on money I can legally write off. I don't want you to keep missing out either!

This in-depth post break downs exactly how the mileage deduction works, what you can deduct and for how much, and by far, the best app I've found to easily keep track of everything. My goal is to make this complicated portion of the tax code is an absolute no-brainer so you can stop paying the government any more than you have to.

Ready to get started?

If you're not familiar with how deductions actually work , deductions reduce your taxable income. So let's say you make $60,000 per year, and you have $20,000 in deductions. Now you only get taxed on $40,000, not $60,000, thus making what you owe to the government, a bit more bearable.

Adding mileage to your list of deductions pushes that taxable number even lower so you owe less. Basically, the more you claim, the more you save!

Tax mileage deduction

What Type of Driving Qualifies for a Deduction?

Let's dig into the nitty gritty detail of what's covered, and what's not. Note: These are 2016 standard mileage rate numbers I'm using.

  • Medical Expenses — Any time you drive to and from the doctor's office, hospital, or to pick up a prescription, you can deduct $.19 per mile. However, there is a teensy catch. Only medical expenses that add up to more than 10% of your adjusted gross income can be deducted.

Let's bring back that $60,000 number and say that's what you made for the year. If your medical expenses are $5,000 , you can't deduct anything. But if expenses are $7,000, you get to deduct $1,000. Make sense?

  • Charitable Expenses — If you drive to and from a non-profit as part of a volunteer activity, you get to deduct $.14 per mile. It's not much, but every little bit counts! FYI: You cannot claim this for driving a child to a volunteer activity…..just the adults.
  • Moving Expenses — If you're relocating for work at least 50 miles away or more, you can deduct $.19 per mile. However, you do have to work full-time for at least 39 weeks during the first 12 months after you move to claim it.
  • Freelance Expenses — Those that babysit, petsit, do lawn care, or participate in some sort of other odd job, get to deduct all of the drives to and from those locations. And the deduction rate is $.54 per mile!

Tax mileage deduction

Those who own their own business get to also take advantage of the $.54 per mile rate, and it covers quite a bit.

  • Errands and Supplies — Any time you need to run to the bank, office supply store, or post office, you can write those drives off. All those little trips really add up!
  • Meals — Have a meeting with a friend or business partner to discuss business? Write off your trip for coffee, drinks, and/or dinner.
  • Travel — Drives to and from the airport, or to another place of business qualify too.
  • Customer Visits — If you have a job that requires you to meet with customers, you know what to do…..write it off!

Heads up — commuting from home to a permanent work location is not deductible in any way. It's considered a personal expense and the IRS is very strict about this — so don't test it! You can find more details on that HERE, plus how to handle mileage driven to a temporary work location .

As I've said before, mileage deductions can be a pretty huge boost during tax time, but the truth is, most mileage records are not adequate enough, and therefore denied by the IRS. Remember, they have to be extremely detailed! The best app I've found that satisfies these strict requirements is MileIQ.

Tax mileage deduction

MileIQ is basically a tracking app that runs in the background on your smartphone. It automatically registers every drive, and when you're done with each trip, you just classify that drive as business or personal, and file it under the category it belongs with one swipe.

Now I know what you're thinking…..what if you don't want MileIQ to track every drive? Not all drives are going to be deductible, but the point of this app is that it tracks every drive so you never forget.

MileIQ highly recommends that you keep track of all your driving so you have complete records to show the IRS. Because when it comes right down to it, the IRS wants to know how many miles you drove during the year, and actually requires this detailed information when you file your taxes.

Although I've already submitted all my tax info for 2015, I'm super excited to track all my miles this year and see the major impact this has on our 2016 taxes. The best part? No time consuming mileage logs or spreadsheets to deal with!

Do You Currently Track Your Mileage?

MileIQ increases mobile productivity for the modern workforce, and is committed to saving you time, money, and peace of mind through their streamlined mileage tracking app. Learn more about MileIQ HERE.

Disclosure: Some of the links in the post above are affiliate links. This means if you click on the link and purchase the item, I will receive an affiliate commission. Regardless, I only recommend products or services I use personally and believe will add value to my readers. Read my full disclosure policy here.

Self-Employed or Freelance? Maximize Your Business Mileage Tax Deduction

Tax mileage deductionAn important part of maximizing the profit from your own business – no matter how small – is to be smart with taxes. If you are running a side business on top of your day job, you may be paying around 50 cents of every dollar made towards taxes. This means, that for every $1 in tax deductions you find, you are keeping an extra 50 cents in your pocket.

One of the more tedious tax deductions for self-employed folks is deducting transportation expenses. The simplest way to claim this deduction for those without vehicles used solely for business is to track the number of miles driven for business use. (You can also record actual automobile expenses like gas and maintenance, and pro-rate.) The IRS just announced yesterday that the standard mileage deduction will be 58.5 cents/mile for all business miles driven for the last half of 2008, up from 50.5 cents/mile.

From above, this means that for every single business mile you deduct, you might save around 29 cents. Deducting just 100 miles per month would save you around $350 over a year. Put another way, not tracking 100 miles a month will lose you $350 a year. There are many complex rules for what constitutes eligible business travel, but it can be worth asking your accountant or reading up. Here are some examples:

  • Driving to the office supply store to make business purchases.
  • Driving from your home office to an external location meet a client.
  • Driving to the bank to deposit checks or make other business transactions.
  • Driving to pick up mail from your UPS Store or P.O. Box.
  • Driving to the post office to send business-related mail or buy stamps.

Many times, you might do this stuff without a second thought. But with gas costs so high, I would argue that we need to recoup whatever we can get. Trust me, these miles can add up quickly!

How do I properly track such mileage? At most office supply stores you can buy a mileage logbook. Or, simply start up a spreadsheet program and create these columns: date, purpose (bank, etc.), odometer start value, odometer stop value. Print it out, slap it on a clipboard, and stick it permanently in your car like I do. Record everything immediately, it should take seconds; you can add up the miles later. (Added: mileage log template for Excel)

What about driving from my self-employed home office to my day job with another employer? Nope, although it would be sweet to deduct such commuting costs, this is not qualified business travel. However, if you have a second site for your own business like a storefront, travel to/from your home office to/from that site can be deductible.

What if my UPS mailbox is next to my day job? Here’s where things get a bit fuzzy. You definitely aren’t allowed to deduct personal trips. But let’s say the supermarket is right next to your business bank. Since you’re already there, isn’t doing some grocery shopping the the eco-friendly thing to do? From my non-official understanding, you would need to prove that your trip to the bank is necessary and the primary reason for the trip, and not just an excuse to go to the supermarket. Making an actual deposit transaction would seem to be sufficient in that regard.

But if you are trying to say that your “business bank” is 30 miles away from your home office and just happens to be the one next door to your 9-5 job, then that may be much harder to justify. It is truly necessary to use that branch?

There’s more… You may also be able deduct mileage driven for charity, medical treatment, job searches, and moving.

Tax mileage deduction

References: IRS Publications 535, 463, and 529

tax mileage deduction

One item that I seem to be defending most often in audits is mileage. Auto ownership can be a huge cost for taxpayers, and unfortunately many of them get into trouble by improperly claiming a mileage deduction on their tax return. I am going to walk you through the basics of what is deductible and how to protect that valuable deduction.

In order for you to have eligible mileage for this deduction you must have more than one job or work location. Driving from your home to your main job then back to home is known as commuting. Commuting mileage is never deductible. If you then travel to a second job or a temporary job location you can log those miles as deductible miles. Any business miles you travel will be eligible, make sure you are not counting personal trips.

Example 1: John is an employee who works as a mechanic. He drives 15 miles Monday through Friday from his home to the shop (main job). After work, he moonlights at another shop which is 25 miles away. John will be able to deduct the 25 miles to the second shop, not the 15 miles nor the return trip home.

Example 2: Using John’s situation above except he leaves to the second shop in the middle of the day for a few hours then returns to the main shop. John would be able to deduct 50 miles each day. His commute of 15 miles between home and the first shop remains non-deductible.

Example 3: John works at the second shop on Saturday. Since this is the only place of work that day his travel is considered commute and is not deductible.

A temporary work location is a place you have been assign to work that will realistically last a year or less. In the case of a temporary work assignment you may deduct the mileage travel from your home to that locations. By definition the temporary work assignment assumes you have a regular work location. Simply having a short term job does not qualify you for this provision. If at some point the expectations of the temporary work location change and you expect the work to last longer than a year the location is no longer considered temporary. You will be able to use the temporary work location provision up to the date your expectations changed.

Example 4: John’s boss opens another store 50 miles away and asks John to help open it. John will assist at the new location for 6 months then return to the main job. Since this time frame is less than a year and John has a main job location, John will be able to deduct the 100 miles from his home to the new shop (temporary work location) and back to home. This will be allowable for the duration of the 6 months.

Example 5: Four months into working at the new shop, John’s boss promotes him to manager of the new shop and this will be his new main job site. He will be able to claim the temporary work location for the 4 months until his expectations changed. After the 4 months his travel is considered commuting and it is no longer deductible.

In order to claim the deduction on your tax return you must keep adequate documentation. To be considered adequate, you must keep a contemporaneous log. Meaning, log your mileage as you go. The Internal Revenue Code also requires that the log contain the amount, time, place, business purpose, and business relationship to the taxpayer. This may seem unrealistic to you but remember this is typically a very valuable deduction. To have this expense disappear during audit because of inadequate documentation can be very costly. Courts have thrown out reconstructed mileage logs time and time again, but I have been successful at audit with reconstructed logs and other documentation.

Some tips for record keeping:

1. Keep a log book showing mileage, time, date and purpose. Write down the odometer reading occasionally.

2. Keep maintenance receipts that show odometer readings. Third party proof of your records.

3. If you forget to track your mileage throughout the year, be diligent for a period of time. I like October 1 through December 31. Then multiply the mileage by 4, along with 3rd party records this will give you a solid estimate. This way of tracking is not perfect but it’s better than nothing.

App Report for MileBug - Mileage Log & Expenses for Tax Deduction

Tax mileage deduction

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Foundational release for new cloud solution coming soon.

Not allowing new sign-ups for MileBug Cloud until new cloud solution is ready.

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