Whether you’re a part-time Uber driver, a full-time truck driver or you occasionally do deliveries on weekends, you’ve got to keep track of your miles. Doing so allows you to deduct your business vehicle expenses, which can seriously lower your tax burden. Depending on what type of driver you are, there are various ways you can use your mileage log and the IRS’s self-employed mileage deduction to your advantage.
Choose a Method
First you need to decide which deduction method to use. The IRS gives you two options: the Standard Mileage Rate Method and the Actual Expenses Method. You won’t be able to take both deductions, so you need to evaluate which will bring you the biggest benefit.
The Standard Mileage Rate Method is the simplest method for calculating your vehicle-related deductions. For the 2016 tax year, the rate is 54 cents per business mile. (It changed to 53.5 cents for 2017). That means if you drove 10,000 business miles in 2016, you’re tax deduction would be $5,400. If you drove 30,000 business miles, you’re tax deduction would be $16,200.
To claim this deduction, you need to keep a detailed mileage log that includes dates, start times and end times, the activities involved, and the beginning and ending odometer readings. With the help of a mileage and expense-tracking app like the one offered within QuickBooks Self-Employed, you can do this automatically and integrate it with your other deduction tracking. The app also allows for easy categorization based on business or personal trips, and won’t drain your smartphone battery.
The Actual Expenses Method allows you to deduct your vehicle’s actual expenses. Eligible expenses include:
- Lease payments
- Registration fees
- Garage rent
- Parking fees
This method also requires a detailed log. Using this method, you can only deduct the portion of the costs that are associated with your self-employed work. For example, if your total actual vehicle expenses for 2016 are $3,000 and you used the vehicle 75 percent of the time for business (3,000 x .75), the allowable deduction would be $2,250.