Mileage Vs Actual Expenses: Should I track miles?
If you drive a car for your 1099 contractor or self-employed work, you can claim a big tax write-off on associated business expenses. There are two ways: keeping track of car expenses or tracking mileage. Here we'll break down if the mileage Vs actual expenses and which one would save you more money.
Tracking Your Miles For Write Offs
The mileage deduction method was introduced by the IRS to simplify the process of trying to keep track of all of your gas / car maintenance / receipts year-round. But does claiming your total miles for business use actually save you more money on your tax return?
Option 1: Actual vehicle expenses method
At the end of the year, sum up all of the actual costs of your car expenses such as gas, lease payments, insurance, parking fees, repairs,️ oil, registration fees etc, and write off the approximate proportion of the time you drove your car for work as an expense deduction.
Option 2: Standard mileage rate method
Throughout the year, record miles were driven for work with a logbook or app. At tax time: claim the standard mileage rate deduction for the year or 54.5 ¢ (the exact amount changes every year) in tax deduction for every mile you’ve recorded.
So... which option saves more money?
There’s no one right answer for everyone, but there's a right answer for you! Let’s start by outlining two examples of recordkeeping with different driving behavior and some assumptions about the kind of car you drive as well as gas prices.
Example 1: Typical drivers... save more with car expenses.
Let’s say you drive about 10,000 miles per year, half of that for work. On an average week, that’s about 200 miles or 5-10 hours of driving. Assuming average stats about car repair needs, mpg vehicle efficiency, and gas prices for deductible expenses, it turns out the actual car expense method is a lot better!
That’s a pretty big difference! With the actual expense method and deducting vehicle expenses, you’ll be claiming an additional $655 in tax write-offs reimbursement which are about $200saved at tax time (assuming 30% effective tax rate).
Example 2: Heavy drivers... save more with miles.
Let’s say you drive a lot for business purposes. Maybe you drive for rideshare companies like Uber or Lyft or delivery and you rack up 20,000 of business mileage per year, 75% for work. Remember, you get no depreciation deduction as the standard mileage rate includes depreciation. Here's how your taxes would break down for business miles:
Bottom line: if you drive a lot, it's a good idea to track your miles. Otherwise, don't bother. Either way, use Keeper for a larger deduction. If you have any questions or need tax advice about using the actual expenses method or keeping a mileage log, contact a CPA or accountant to ask about your Schedule C at the end of the tax year.