6 Frequently Asked Questions About Business Mileage Calculations
Find out how to deduct the use of a car for business purposes
Whether you have a car that has been purchased by your business or you are using your personal vehicle for business purposes, you need to know how to calculate mileage for the business use of your vehicle.
You can record business mileage in one of two ways: using actual expenses or using the standard deduction rate.
To deduct business mileage using the standard mileage rate, multiply the actual business miles driven by the standard mileage rate published by the Internal Revenue Service (IRS) for the tax year the driving occurred. For the 2020 tax year, the standard mileage rate is 57.5 cents per mile. Note that you can only deduct business mileage, not personal mileage.
Choosing between the standard mileage deduction or actual expenses will probably depend on which method provides you the most tax savings. The answer to this question depends on several variables, including the number of miles driven and whether you have both personal and business vehicles. The most important variable is the number of miles driven for business during the year.
When you take a deduction using actual expenses, you can use almost every expense associated with your business driving, including:
- Interest on the vehicle loan
- Vehicle depreciation (leased vehicles cannot be depreciated)
- Registration fees and tax
- Parking fees and tolls
- Garage rent
- Lease payments (with some restrictions)
- Insurance on the vehicle
- Gasoline and oil
- Maintenance and repairs
- License plates
- Registration fees
Total these expenses and multiply by the percentage of business use for the vehicle. Therefore, if 50% of the miles driven on the vehicle were for business use, you'd multiply your expenses by 50%.
Be aware that there are several limitations on the use of the standard mileage rate. For example, you may not use the standard mileage rate to calculate your mileage deduction if you used the modified accelerated cost recovery system, also called MACRS accounting, or if you claimed a Section 179 deduction on the vehicle. You also can't use the standard mileage deduction for more than four leased vehicles used at the same time.
Once you have determined your business mileage, you must record it on your tax return. You will need to gather information on the use of your vehicle for business purposes.
The way you record business mileage depends on which business tax return you use. Schedule C for small businesses, for example, includes questions about:
- The date you started using the vehicle
- The total number of miles for business, commuting, and other use.
- Questions about whether the vehicle was available for personal use during non-business hours, was another vehicle available for personal use, and if you have evidence to support your deduction.
Having evidence to support your deduction is the most important part of taking the deduction. If you don't have specific, detailed, at-the-time documents, the deductions may be disallowed in an IRS audit.
Some other expenses you may be able to deduct as business travel mileage include:
- Mileage from a home-based business: If you work from home, miles you drive from home to business locations are deductible as a business expense.
- Mileage for a non-company car: You can deduct business miles driven in any car, as long as you keep good at-the-time records.
However, there are some things you can't deduct. For example:
- Mileage as advertising: If you drive a car with advertising on it, the expenses for driving the car are not considered as a business expense. (But the cost of putting the logo on the car is an advertising expense.)
Everyone has to drive back and forth to work (unless they work at home). The IRS says these commuting expenses are personal expenses, not business expenses. They aren't deductible on your business tax return or your personal tax return.
There are some exceptions to this IRS rule: You can deduct expenses for traveling between workplaces and to a different, distant worksite.
if you have a home business, some expenses for driving back and forth from your home business may be deductible, if your home business is your principal place of business. Of course, all of the driving must be business-related in order to be deductible on your business tax return.
The IRS announces changes to the standard mileage rate every year because the rate is indexed to inflation. The year's mileage rate is for the tax year, not the year in which you prepare the return. For example, mileage driven in 2020 would be multiplied by the 2020 standard mileage rate of 57.5 cents per mile, even though you file your return in 2021 when the standard mileage rate is 56 cents per mile.
No matter how you calculate your business miles, in order to receive a tax deduction for business driving, you must have excellent records. Your recordkeeping must be complete and accurate, done when the expense occurred—not months later. Setting up a system for keeping track of business mileage can help you take all of your deductions as allowed by the IRS.