Questions About Business Mileage Deductions
How Do Changes in the Tax Law Affect Driving Expenses?
This article has been updated to include information about the latest tax law changes - the 2017 Tax Cuts and Jobs Act.The key change that affects employees who drive for business purposes is the elimination of the deduction for unreimbursed employee business expenses. In the past, you could deduct any driving expenses that were not paid by your employer. Beginning with the 2018 tax year, you can't deduct those expenses, through the 2025 tax year.
More Questions About Deducting Business Driving Expenses
CPA Gail Rosen (with WilkenGuttenplan) answers some questions about deducting mileage expenses for business travel, with additional information in each answer.
Are Commuting Miles Deductible?
Q: I was an independent contractor last year. I traveled to get my son, who worked on the job with me, though unpaid. Can I claim the mileage to pick him up from my house as a mileage expense? Further, when I drop him off after the job, can I claim the mileage back to my home?
A: No, you cannot claim mileage to pick up your son who works for you. Commuting expenses, which are expenses for traveling from your home to work, are not deductible.
The distance between home and work is considered commuting. Everyone has to get to work, so the IRS doesn't consider these expenses as business expenses. If you decide you want to travel long distances every day to commute, that is still commuting as long as you are home every night.
Can I Deduct Travel Miles as Advertising?
Q: If I put my company's logo on my car, can I deduct my traveling miles as advertising?
A: No, a company logo on your car does not make it a business vehicle. You must keep a contemporaneous log of your business miles and total miles for the year.
The advertising expense in this example is the cost of putting the logo on the car. Driving the car around is not advertising; it's just driving. The IRS says, "Putting display material that advertises your business on your car does not change the use of your car from personal use to business use."
Are Miles from a Home Based Business Deductible?
Q: If I work out of my home as an independent contractor, can I claim mileage to work sites and back home? Can I deduct trips made to the bank and post office? What if I make business-related trips from my home office and also stop to do personal errands? How do I figure the mileage?
A: Yes, your mileage to work sites and back are business miles that must be supported by written documentation of where you went and how many business miles you traveled. Trips to the bank and post office also qualify as business mileage if documented. Trips for personal errands are ignored. The end result of your records should be business miles for the year (with a backup written log) and total miles you drove for the year. To document your total miles driven, take your odometer reading at the beginning and end of the year.
The IRS often looks at the odometer reading on auto repair bills to see if your total miles are reasonable.
By the way, if your home is your principal place of business, you can deduct the cost of driving from your home to business locations (like a client's office or the office supply store) as a business expense. Business purpose should be the reason for the trip and you will need to have excellent records on the purpose in order to document the deduction.
Which Should I Use - the Standard Deduction or Actual Expenses?
Q: How do I know whether to take the standard deduction or use actual expenses?
A: You should try both the standard mileage deduction and actual expense method to see which method gives you the largest deduction. The larger the deduction you are entitled, the more you save in taxes.
Every time you reduce your taxable income by taking more auto expenses, you reduce your total federal taxes by 25% - 50% (plus applicable state taxes) so make sure you maximize the auto deduction by trying both methods. The total federal taxes of 25% - 50% are due to the fact that you pay federal tax, social security, and Medicare on any net profits. Your federal tax rate is anywhere between 10% and 35% under current tax laws.
As an independent contractor, social security and Medicare taxes are 15.3% (you have to pay both the employee and employer matching) unless you are over the social security limit of $106,800 for the year. Therefore, if one method of calculating the auto deduction equals $1,000 more in allowable deductions than the other method, you can save taxes of $250 (25%) to $500 (50%) depending on your tax bracket, plus state tax savings.
For the actual cost method, determine the business percentage of use based on business miles documented divided by total miles driven for the year. Apply that percentage to actual expenses of owning and operating the vehicle; including gasoline, oil, tire, maintenance and repairs, insurance, repairs, insurance, registration fees and licenses, car washes, lease payments or depreciation if you own the car. Luxury limits are applied to lease payments and depreciation of the vehicle if the car has unloaded gross vehicle weight of 6,000 pounds or less.
There are some restrictions on the use of these two methods. You can't switch off between actual and standard from year to year; if you don't use the standard deduction in Year 1 you can't use it in Year 2. The IRS doesn't allow you to use the standard deduction in some cases if you use certain accelerated depreciation methods on the vehicle, and it can't be used for more than four vehicles. Check with your tax professional before you select a deduction method.
Are Estimates Acceptable?
Q: I drove about 8,000 miles last year for my home business. I have some receipts, but I didn't log all the miles. Is an estimate OK? Can I still take the deduction if I don't have all the supporting information?
A: No, estimated business miles are not allowed to support your tax deduction. The tax court disallowed the auto expenses in 2009 for the owner of a real estate brokerage firm and her employee in Engle v. Commissioner. The taxpayer admitted that their reported mileage amounts were estimates. In a summary opinion, they held that due to lack of substantiation the taxpayers were not entitled to the auto deduction.
Lack of good records is probably the most common reason taxpayers fail to persuade the IRS and the Tax Court to accept their deductions. Your records must be timely (recorded at the time of the expense), accurate, and complete. Be sure to include (a) the business purpose, in detail, (b) the cost (c) the date, (d) the location.
What are good records? The best way to prove your business expenses, especially travel and driving expenses, is to create the proof at the time of the expense with all the information needed: date, place, amount, who was there, and what was the business purpose. If you do a lot of driving for business you might want to consider one of the many apps that track mileage. Several of these apps let you select between business and personal use.
Can I Deduct Mileage for a Non-company Car?
Q: I am using my mother's car for my business driving. I pay the gas, maintenance, and the insurance. Can I deduct the use of the car as a business expense?
A: You can deduct the actual expenses that you pay and as long as you keep contemporaneous (at the time) records for these expenses. You must have proof that you pay the gas, maintenance, and insurance and you need substantial records to support your business use. Make sure that you take out your personal use and your mom’s personal use.
If you are driving as an employee, you can claim business driving expenses on your personal tax return in Schedule A - itemized deductions. You can't claim expenses for which you received reimbursement, but you can claim expenses you paid for. Once again, good records will keep you out of trouble if you are audited.
Disclaimer: The information provided here is for general information purposes only; it is not intended to be tax or legal advice. Each situation is specific; consult your CPA or attorney to discuss your specific business questions.