Mileage vs. Actual Expenses: Which Method Is Best for Me?

Mileage vs. Actual Expenses: Which Method Is Best for Me?

by
Paul Koullick
Updated 
February 23, 2024
February 23, 2024
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Reviewed by
Tax guide
Mileage vs. Actual Expenses: Which Method Is Best for Me?
by
Paul Koullick
Updated 
February 23, 2024
February 23, 2024
Icon check
Reviewed by

If you drive a car for your 1099 contracting or self-employed work, you can claim a big tax write-off on the associated business expenses.

Calculating that write-off is especially important if you’re a rideshare driver, since you’ll have to pay both 1) income tax and 2) self-employment tax. The mileage deduction can reduce both of those bills.

Let's break down the difference between mileage vs. actual expenses and find out which one will save you more at tax time. 

Contents

How the standard mileage method works

The mileage deduction method was originally introduced by the IRS to simplify car expense write-offs.


With this method, you don't have to keep track of all your car, maintenance, and gas expenses all year round. You also can't deduct depreciation — all of these costs are "built into" the standard mileage deduction. 

Instead, throughout the year, you'll track the miles you drive for work using a logbook or an app. At tax time, you can claim a standard mileage rate deduction for every mile you drove.

This rate, set by the IRS, changes every year. For 2023, it's $0.655 per mile. For 2024, it will increase to $0.67 per mile.

Write-offs you can claim on top of the standard mileage deduction

Keep in mind that the standard mileage rate method won't replace all of your driving-related expenses. Some actually stack on top of this deduction, including:

  • 🅿️ Parking fees
  • 🛂 Tolls
  • 🧽 Car washes
  • 📋 Registration fees

That's good news for your tax savings but it means you'll still have to track some of the expenses incurred during your work-related driving. To make this easier, you can use Keeper, our app that automatically scans your purchases for work-related expenses like these.

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How the actual expenses method works

To use this method, you'll first add up all the costs you spend on your car.

These are the costs you can write off using the actual expenses method:

  • ⛽ Gas
  • 🛡️ Insurance
  • 🔧 Maintenance
  • 🛢️ Oil changes
  • 💰 Lease payments
  • 🏷️ Depreciation

Then, you'll multiply this by the percentage of time you drove your car for work (also known as your "business-use percentage").

How to claim actual car expenses without tracking everything by hand

The actual expenses method used to be pretty burdensome for self-employed taxpayers. These days, though, technology has made it far easier to track your actual vehicle expenses.

Keeper can automatically scan your purchases for these expenses — meaning you don't have to do any manual recordkeeping in a spreadsheet.

Advances like this have made some self-employed people less likely to avoid this method, because it eliminates the hassle of tracking expenses.

Which method gets you the biggest tax deduction?

There’s no one right answer for everyone, but there's a right answer for you. And it depends on how you drive — as well as how much you spend on variable costs like gas and repair.

Let’s walk through this with two examples: someone who drives a typical amount for work, and someone who drives a lot.

As you'll see, the typical driver gets a larger deduction using the actual expenses method. But the heavy driver saves more by tracking mileage.

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For typical drivers: Actual expenses saves more

Let’s say that, in 2018, you drove about 10,000 miles per year, with a business usage percentage of 50%. On an average week, that’s about 200 miles of driving — about five to 10 hours in total.

In this case, we'll assume that your auto repair needs, your vehicle's fuel efficiency, and your gas prices were all average, meaning your deductible expenses weren't unusually heavy or light.

Here's how the math shakes out for the standard mileage method:

Mileage vs Actual Expenses | A typical driver using the standard mileage method

Now, let's look at how things would have looked with the actual expenses method.

Mileage vs Actual Expenses | A typical driver using actual car expenses

Turns out, the actual car expense method would give you a far greater deduction. If you use the standard mileage method, you could write off $2,725. But if you deduct your actual car expenses, that number goes all the way up to $3,380.

That's an extra $655 in tax write-offs from your car. Assuming you were taxed at a 30% effective tax rate, that would translate into an extra $200 in your pocket at tax time.

For frequent drivers: Tracking mileage saves more

Now let's switch it up. Say you drove a lot for business purposes — maybe for a rideshare company like Uber or Lyft.

You racked up 20,000 miles that year, 15,000 of which were business miles.

Here's how your taxes would break down, using the standard rate from 2018:

Mileage vs. Actual Expenses | A heavy driver using the mileage method

Needless to say, that's a huge deduction.

Which method is best for me?

Here's the bottom line: If you drive a lot for work, it's a good idea to keep a mileage log. Otherwise, the actual expenses deduction will save you the most.

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Switching between standard mileage and actual expenses

For most self-employed people looking to write off their auto expenses, tax savings are top of mind. But there's another important consideration: The ability to switch between the two methods.

If you choose the actual expenses method the first year you start using your car for work, you're locked into that method for the rest of the vehicle's life. If you choose the standard mileage method that first year, you can switch freely between them later on.

This restriction is likely to be an issue only if you end up driving a lot more for work in the years after you get your car.

Here's a quick summary of each method's pros and cons.

Pros and cons of the standard mileage method

Pros:

  • You can switch between methods if you use this in your first year
  • You'll get a bigger tax break if you drive a lot

Cons:

  • You'll get a smaller tax break if you drive a typical amount
  • You'll have to track the number of miles you drive

Pros and cons of the actual expenses method

Pros:

  • You'll get a bigger tax break if you drive a typical amount
  • You'll be able to deduct vehicle depreciation

Cons:

  • You're locked into this method if you use it in the first year
  • You'll have to sum up all your car expenses

Take these factors into consideration, and you'll land on the method that works best for you.

Paul Koullick

Paul Koullick

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Paul Koullick is the co-founder and CEO of Keeper. He's committed a decade of his career to the consumer tax industry, and has been quoted as an authority on taxes in U.S. News & World Report, Vice, Forbes, and others. Paul holds an A.B. from Harvard University, and loves jogging and chess.

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Mileage vs. Actual Expenses: Which Method Is Best for Me?
Mileage vs. Actual Expenses: Which Method Is Best for Me?

Over 1M freelancers trust Keeper with their taxes

Keeper is the top-rated all-in-one business expense tracker, tax filing service, and personal accountant.

Mileage vs. Actual Expenses: Which Method Is Best for Me?
Mileage vs. Actual Expenses: Which Method Is Best for Me?

Over 1M freelancers trust Keeper with their taxes

Keeper is the top-rated all-in-one business expense tracker, tax filing service, and personal accountant.

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At Keeper, we’re on a mission to help people overcome the complexity of taxes. We’ve provided this information for educational purposes, and it does not constitute tax, legal, or accounting advice. If you would like a tax expert to clarify it for you, feel free to sign up for Keeper. You may also email support@keepertax.com with your questions.