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

How the standard mileage method works

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

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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:

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

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:

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.

FAQ

How does the standard mileage method work?

With the standard mileage method, your car deductions are based on the number of miles you drove for work during the year.

For your 2023 taxes, you can claim $0.655 per mile driven for business use. The rate changes yearly and in 2024, it will increase to $0.67 per mile.

For example, if you drive 5,000 business miles in 2024, you’ll be able to claim $3,350 using the standard mileage method.

To claim your deduction, you’ll need to keep a logbook or use a tracking app that records those miles. Your records should include:

• The time (start and end) and date of each business trip
• The number of miles driven (including your odometer information from the start and end of your trip)
• A description of your work activity

(Pro tip: Take a picture of your odometer on January 1st. If you forget to log any miles, you’ll be able to look back and see where you started at the beginning of the year.)

How does the actual expenses method work for car deductions?

To use the actual expenses method, you’ll need to add up all your car costs and multiply that number by the percentage of the time you use your car for work.

Common car-related expenses include:

• 🏷️ Cost of the car
• 💰 Lease payments‍
• ☂️ Insurance‍
• ⛽ Gas
• 🛢️ Oil change
• 🔧 Maintenance

Let’s say you spent $7,000 on your car last year and 50% of your driving was for business purposes. Using the actual expenses method, you’d be able to write off $3,500.

Is it better to claim mileage or actual expenses?

The right method for you depends on how much you drive for work and the amount you typically spend on car-related expenses.

In the two examples above, the deduction is actually fairly similar: $3,350 using the standard method and $3,500 using the actual expenses method.

If you bank a lot of mileage for work, the standard method might result in bigger tax savings. If you drive a fairly average amount for work, however, you might save more using actual expenses.

Can I switch between mileage and actual expenses?

If you use the standard mileage method for deductions during the first year you start driving for work, you’ll be able to switch between that and actual expenses in the following years.

However, If you use the actual expenses method in the first year you drive for work, you’ll have to keep using that method for as long as you keep using the same car for work. So if you think you might want to use the mileage method at any point, use it the first time you deduct car expenses.

If you’re still struggling to choose the right method for you, you can estimate your miles, business use percentage, and car expenses at the beginning of the year to get an idea of which method will benefit you more.

Let’s say that in 2024, you estimate you’ll drive 40,000 miles, 50% of which will be for work.

Using the standard method, you’ll be able to deduct $6,700 on your 2024 taxes. (20,000 work miles multiplied by $0.67 = $6,700 deduction.)

In order to claim at least the same amount using actual expenses, you’ll need to have spent a minimum of $13,400 on car expenses. ($13,400 in expenses x 50% business use percentage = $6,700 deduction.)

Additional contributions by Arielle Contreras.