With the flexible freedom of self-employment also comes the responsibility of keeping track of business expenses. And when it comes to the vehicle that keeps you on the road, tracking is even more important.
The Internal Revenue Service (IRS) allows for standard mileage rates or actual vehicle expenses to be deducted, so how do you know which is more valuable? And with IRS standard mileage rates fluctuating each year, managing mileage rate details can be confusing.
What Counts as a Deduction?
While those who work in an office full time may not deduct miles driven from home to the office and back, those who are self-employed and have a home office can do so. Personal miles — like going to lunch or running errands unrelated to work during the day — are not deductible. Here are a few examples of qualified business mileage deductions:
- A ride-sharing driver for a company such as Uber or Lyft may deduct miles driven while looking for their next client.
- A pool cleaner may deduct miles when they are driving to each of their client’s houses.
- Freelance graphic designers can deduct miles for meeting with clients.
Maximize savings by keeping track of any trip you think might be related to business and then get counseling from a tax advisor if you’re unsure if the expense is deductible.
Besides Mileage, What Else Should I Track?
The federal mileage rate for 2016 taxes is 54 cents per mile for miles driven for business. If you’re taking the standard deduction, all you need for tax purposes is your mileage log.
As mentioned above, you may choose to submit for a return on actual vehicle expenses, rather than standard mileage. When you file for taxes, Part II of the IRS form will only allow for one type of expense to be deducted. If you want to make sure you are getting the highest return when you file, track every expense related to your vehicle, so you can compare actual expense costs with mileage costs at the end of the year, and then determine which deduction is greater.
Actual expense costs include:
- Car washes and maintenance
- Lease payments
Read here to learn more about whether the standard or actual expenses deduction provides the larger benefit to you.
What’s Next for Business Mileage Rates?
The IRS announces business mileage rates each year. For 2016 tax filings, 54 cents per mile is the standard mileage reimbursement rate, down 3.5 cents from the 2015 rate.
While lower gas rates may cause an increase in the deductible amount, rates tend to stay fairly steady each year increasing slowly with inflation. In 1995, for example, the rate was only 30 cents per mile.
It is never too late to start tracking to save on your taxes. The QuickBooks Self-Employed software is simple and easy to use. And the integrated mileage tracking feature automatically tracks business mileage so you are more prepared come tax time. Unlike many GPS mileage tracking apps, it doesn’t drain your smartphone battery, either.