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Learn about standard mileage and actual expenses deduction methods

by Intuit• Updated 2 years ago

If you use a vehicle for your self-employed business, you may be able to deduct the business-related expenses. There are two general deduction methods: standard mileage and actual expenses.

QuickBooks Self-Employed uses the standard mileage method. But, you should also track all of your vehicle expenses in QuickBooks. This lets you decide which deduction method you want to use when you file your taxes.

Each method has advantages. Here are some general guidelines. For the most up-to-date info, refer to the IRS website.

How vehicle deductions work

What you can deduct depends on how you use your vehicle. If you use it exclusively for business, you may be able to deduct the entire cost of using your vehicle. However, if you use it for both business and personal purposes, you can only deduct the business costs.

One method may be more beneficial depending on your tax situation.

Instead of counting every single expense related to driving your vehicle, you can use the standard mileage method. This gives you a deduction based on how many business miles you drive. You keep track of the mileage, but you don’t deduct the cost and upkeep of the vehicle itself. Refer to the IRS website for the latest standard mileage rates.

QuickBooks Self-Employed uses the standard mileage method to calculate your estimated taxes. When you travel, make sure you enter trips on the Mileage menu or use the mobile app to track trips automatically.

Note: You can only use this method if you own or lease your vehicle.

Use this method to calculate and deduct the amount you actually spent using your car for business. This includes gas, oil, repairs, tires, car insurance, registration fees, licenses, and depreciation (or lease payments).

The deduction is proportional. If you drive your car 60% for personal use and 40% for business, your deduction will be 40% of the total of actual expenses. Here are some general guidelines:

  • Every expense you claim must be related to business travel, not personal travel.
  • You can claim expenses such as gas, oil, repairs, tires, and more.

QuickBooks Self-Employed uses the standard mileage method, but you should still enter and categorize all of your vehicle expenses in QuickBooks.

When you categorize your vehicle expenses, mark them as Business and use Car and Truck for the expense category. If an expense is for both personal and business travel, categorize it as Business. TurboTax or your tax pro can help calculate the correct ratio when you file your tax return.

Note: QuickBooks excludes vehicle expenses when calculating your federal estimated quarterly tax payments. This lets you decide how you want to claim the deductions at the end of the year. Otherwise, you may accidentally double-count your expenses.

Tips for tracking your miles

  • Track your miles and vehicle expenses in QuickBooks. At the end of the year, you can decide which deduction method you want to use to track your business mileage.
  • Pick one deduction method and stick with it. TurboTax or your tax pro can help you decide which method is best for you. It's very difficult to switch between methods. Learn more about switching methods from TurboTax.
  • Commute mileage is separate from business mileage. Commuting to your self-employed work may seem like work. However, it's not considered business mileage from a tax perspective.
    See an example

    If you’re a dog-walker and you regularly drive from your home to a client’s home to pick up the pups, those are considered commute miles.

    When you transport the dogs to and from the dog park for exercise, you're working. Those are considered business miles.

  • If you track miles with the MileIQ app or Google Timeline, you can import your miles directly into QuickBooks Self-Employed.

Get help with tax questions

For a deeper dive into standard vs actual expense methods, check out this guide from TurboTax. Also, the TurboTax community is a great place to find answers. Read FAQs, ask questions, chat with an agent, or give experts a call.

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