Business Miles vs. Commuting Miles: What's the Difference?
If you're a freelancer or independent contractor who sometimes drives for work, the miles you log can help you save a lot on your taxes.
That's right — when you're driving and blaring music out of your stereo (or listening to the latest true crime podcast), you're doing something that can bring your tax bill way down.
There's just one thing to keep in mind: not every mile you drive is tax-deductible. Business miles count, while commuting miles don't. Let's get into the difference between the two.
What are business miles?
The IRS lets self-employed people claim car-related tax write-offs based on the business miles they drive every year.
In simple terms, any time you drive from one place of work to another, that's a business mile.
You can be traveling between worksites and meeting locations, of course. But it also counts if you head out for a business lunch, make a run to the post office or the bank, or head to Staples for supplies.
What are commuting miles?
Unlike business miles, what the IRS considers "commuting miles" aren't tax-deductible.
If a business mile takes you from one workplace to another, a commuting mile takes you between your home and a workplace. Driving between your house and an office building, for example, would be considered commuting.
How commuting miles work with a home office
Now you're probably thinking, "What if my place of work is a home office?"
If we followed the IRS rules in this instance, then your commute from the bed to the laptop would be your first trip to work. And then, your first trip of the day — to McDonald's for the 20-nugget combo — would count as a business trip, right?
Wrong — even if Ronald McDonald himself is one of your clients. If you're a home-based independent contractor, then applying the rules as they are to you would be unfair to people who work out of separate business offices. After all, they don't get a mileage reimbursement when they leave home.
That's why, if your primary place of work is your home office, your first and last trips of the day count as commuting mileage. So if you want to get some business mileage out of a trip from home, go to a temporary work location first — like a client meeting site. Then you can go grab some nuggets with Szechuan sauce.
How business vs. commuting miles work
Let's use an easy example to get a base understanding of how these two types of mileage work.
Say that you have your own small business office two miles away from your home. You drive to and from this office every day. Then, once a week, you leave this office and drive five miles away to meet with a client.
On the day you have your client meeting, you'll have driven fourteen total miles: two miles to the office, five miles to meet your client, five miles back to the office, and then two miles home.
According to the IRS mileage rules, your drive to the office and back home from your office are commuting miles, so they're not tax-deductible.
Now, what about your client meeting? Those miles would be considered a business trip, and would be tax-deductible. Since you had to leave your primary business location to meet with your client, those miles qualify as business miles.
The two ways to deduct business mileage
Once you've figured out how many business miles you're driving, the IRS gives you two ways to expense the business use of your vehicle. You can deduct a standard mileage rate, or write off your actual vehicle expenses.
The standard mileage rate
This method tends to work best for independent contractors who rack up a lot of business miles in a tax year, like Uber and Lyft drivers and DoorDashers.
Each year, the IRS lets you write off a standard amount for each business mile you drive. In 2021, the standard mileage allowance was $0.56 per mile. So, if you end up driving 30,000 miles for work, you'll be able to write off $16,800 at the end of the year.
This standard rate includes car-related costs you'd otherwise be able to write off separately, like gas and vehicle depreciation. However, there are some driving expenses you can write off on top of the standard mileage rate, including:
- 🅿️ Parking fees
- 🛂 Tolls
- 🧽 Car washes
- 📋 DMV fees
That means you won't be entirely off the hook when it comes to tracking expenses. An app like Keeper Tax can help: it'll scan all your purchases for those purchases, so you won't have to manually keep track of your write-offs.
The IRS has some additional restrictions on using the standard mileage rate:
- You can't operate five or more cars at the same time (a fleet operation)
- If you want to use it for a car, you have to choose the method in the first year you use your car for work. (In future years, you can switch to the actual expense method if you like)
- If you lease the car, you'll have to keep using the standard mileage method for the entire period of the lease, including any renewals
The actual expenses method
This method tends to result in a bigger tax break for freelancers who do a light or moderate amount of driving for work. (Take a look here at the math comparing it to the standard mileage method!)
If you use the actual expenses method, you keep track of what you actually spend on your car for the year, then multiply that total spend by the percentage of driving you did for work. (If you use your car 60% of the time for work errands and 40% of the time for personal trips, for example, you'd multiply your total car expenses by 60%.)
Under the actual expenses method, you can claim any expenses you incur on your car. Gas, oil, insurance, and maintenance — each of these is a qualified business expense. With this method, you also can take a deduction for vehicle depreciation if you own your car. If you lease, then you'll be able to deduct lease payments.
The actual expenses method is heavier on the recordkeeping side than taking the standard mileage rate — even if it can lead to bigger tax savings for most freelancers. To streamline your recordkeeping, use Keeper Tax. The app automatically scans your purchases for car-related expenses, at gas stations, auto repair shops, and more. That way, it's easier to save on taxes with the actual expense method.
How to track your miles
If you drive a lot and decide that the standard mileage method is best for you, you'll have to track how many business miles you drive every year.
This is most commonly done with a mileage tracking app, or by keeping a mileage log and consulting your car's odometer.
Combine this with Keeper Tax to track any other deductible expenses, tolls, parking fees, and car washes. Then you'll be prepared to take the biggest possible tax deduction on your business miles.