How to Calculate Mileage Deductions on Your Tax Return
The Internal Revenue Service gives you a choice when you're claiming a deduction for business mileage on your vehicle. You can use the actual expenses method to calculate your deduction, or you can use the standard mileage method.
Using actual expenses requires adding up all the money you spent on your vehicle over the course of the year, then multiplying that figure by the percentage of mileage that you drove for business. You would have a $3,000 deduction if you spent $6,000 on your vehicle and drove it for business purposes 50% of the time.
The easier way out is to add up the miles you drove for business during the year and simply multiply that number by the standard mileage rate set by the IRS for that year. The rate tends to change a little annually because it's indexed for inflation.
Using the Actual Expenses Method
You must keep careful track of all the money you spend related to the operation of your vehicle in order to calculate your business mileage deduction using this method. Expenses you can generally claim include:
- Lease payments
- Insurance payments
- Regular maintenance such as oil changes and tire rotation
- New parts, such as tires, windshield wipers, and lights
- Fees for registration and inspection
Add these expenses together, then multiply the total by the percentage you used your vehicle for business. Using the above example again, you could claim a deduction for $3,000 if you spent $6,000 related to the operation of your vehicle during the year and 50% of the miles you drove were for business purposes: $6,000 x .50 = 3,000.
The remaining 70% of your mileage was personal so it isn't deductible.
You should be able to produce receipts or other proof of payment for each of these expenses, as well as a mileage log for times when you use your vehicle for business purposes. The IRS can more easily disallow your claim if you don't have documentary proof.
Using the Standard Mileage Method
This is the simpler of the two methods by far because it doesn't take the operating costs for your vehicle into consideration. It only requires that you track your mileage for business use.
You can do this by creating a log that includes the dates and times you drove for business purposes, descriptions of the business activity you were conducting at the time, and odometer readings for each trip. You can do it by hand, on a spreadsheet, or with a mobile app.
Multiply the total miles by the standard mileage rate determined by the IRS for the tax year. The rate was 58 cents per mile in 2019, then it dropped by half a cent to 57.5 cents per mile in 2020.
Your deduction would be $2,875 (5,000 x .575 = $2,875) if you drove 5,000 miles for work in 2020 when the standard mileage rate was 57.5 cents per mile.
You can also claim a deduction for miles driven for medical reasons and charitable purposes if you itemize your personal deductions, but these rates are much less, just 17 cents and 14 cents per mile respectively in 2020.
Who Can Claim This Deduction?
You're entitled to a business mileage deduction if you're self-employed, but such unreimbursed expenses for employees ceased to be tax deductible when the Tax Cuts and Jobs Act went into effect in 2018.
An exception to the rule exists for Armed Forces reservists, employees with impairment-related expenses, certain local and state government officials, and qualified performing artists.
Which Calculation to Use?
Each method of calculating your mileage deduction offers advantages and disadvantages depending on your individual situation. The actual expense method would probably end up being best for you if you had a lot of vehicle costs, such as repairs, during the year, or if you have hefty auto lease payments.
You might want to try calculating your deduction both ways to determine which will give you the larger payoff. Consult with a tax professional to determine the type of mileage deduction calculation that's right for you each year if you have any doubts.
NOTE: Tax laws change periodically. You should always consult with a tax professional for the most up-to-date advice. The information contained in this article is not intended as tax advice and it is not a substitute for tax advice.