The Quick Guide on How to Track Miles for Taxes
If you drive a car for your 1099 contractor work, you can claim a big tax write-off on your vehicle expenses.
The truth is, most people don't actually need to track miles for taxes in order to claim this write-off. That's because there are two ways to calculate the actual amount of your tax deduction, and one of them involves tracking how much you actually spend on car-related expenses.
But before we dive into how — and whether — to track your miles, let's talk about what qualifies as business mileage in the first place.
What qualifies as business mileage?
First things first. “Commuting” doesn't qualify as business miles.
Say you have an office, shop, or other location where you normally conduct your business. In that case, driving from your home to that location is considered commuting and isn't deductible. It's no different than if you were a W-2 worker and commuted to an office each day.
Some freelancers have tried to think of workarounds to turn those commuting miles into actual business miles — say, by making business calls while driving.
Unfortunately, that won't cut it with the IRS. In their eyes, the commuting rule is black and white.
However, if your office is in your home, then any miles you drive to visit clients or customers does count as business mileage.
Here’s a cheatsheet to help you figure out whether your miles count:
- Driving to client
- Driving to a professional conference
- Driving to meet a client for lunch
- Driving to the bank, post office, or office supply store for work supplies
Not business mileage
- Driving from or to home from your office or shop
- Having a sign on your car
Tracking your miles with a mileage log
Keeping thorough records will help you document your business expenses. Car-related expenses are no different. If you plan on writing off your car expenses, you can do that with a mileage log template. (If you're a rideshare driver, Uber tracks some of your miles for you, and Lyft does the same.)
The truth is, logging your miles this way isn’t required to deduct your car-related expenses. Tracking your actual car expenses instead will generally yield you a bigger tax break. We'll dive into this some more below, but you can also learn more in our comprehensive guide to deducting car expenses.
Still, if you drive a lot, or like to keep super-detailed records for your own peace of mind, you’ll benefit from logging all your business mileage by following these steps
- On January 1, start by writing down your car's odometer reading. You'll also record it again at the end of the year!
- Between January 1 and December 31, keep track of all the business trips you take. For each, note the starting odometer reading when you first set off, and the ending reading when you return to your place of work.
- For each trip, note down A) where you went, and B) the business purpose of the trip
To make things easier for you, keep a mileage log book right in your car. That way, you can easily jot down your starting and ending readings for each trip while it’s still fresh.
If you prefer a more high-tech solution, there are several mileage tracking apps you can download right to your phone. Most of these mileage tracker apps will give you a year-end report summarizing all the mileage information you’ll need for your tax returns.
Tracking your mileage for tax write-offs
Why would an independent contractor or freelancer need to keep a mileage log? It’s so they can deduct their car expenses from their taxes using the standard mileage method.
This is one of two methods you can use to write off car expenses.
Choose a method: Standard or actual
The IRS allows freelancers, gig workers like Uber or Lyft rideshare drivers, and the self-employed to deduct their business mileage in one of two ways. There’s the standard mileage rate method, and the actual expenses method.
Let's dive into tracking your mileage vs taking your actual expenses.
Standard mileage rate method
Under the standard mileage rate method, you'll take the total number of miles you drove for business purposes during the year and multiply it by the IRS's standard mileage rate. For 2021, that rate is $0.56 per mile.
If you use this method, you’ll have to record the miles you drove for work throughout the year, with a logbook, app or mileage keeper. Then, at tax time: claim that $0.56 per in tax write-offs for every mile you’ve recorded.
The IRS initially came up with the standard mileage deduction as a simplified way for taxpayers to take their car expense deduction. You only need to track one thing — the actual miles that you drove that year. At the time, freelancers and gig workers tended to find this easier than tracking all their car expenses.
These days, however, apps like Keeper Tax make it easier to track car-related expenses by automatically scanning your bank account for relevant transactions, without you taking time out to record every gas run or tire rotation. That’s made the standard mileage rate method less attractive self-employed taxpayers.
Furthermore, as we'll see later, tracking miles doesn't always provide you with the biggest write-off compared to the actual expenses method.
Actual expenses method
Using the actual expenses method is easy if you have expense tracking software.
You'll start by adding up all your expenses for maintaining your car for the year — that is, your business mileage divided by your total mileage. Then, you'll estimate the percentage of time you drove your car for business purposes. That way, you'll be able to deduct the proportional amount of actual expenses.
If you want to be precise, you can also keep a mileage log to track the exact number of business vs. personal miles you’re driving per year. But to be honest, it's not necessary.
Types of expenses allowed under the actual expense method
Why does the actual expense method provide most taxpayers with more savings? It adds up quickly for small business owners when you consider all the expenses that qualify.
- Maintenance and repairs
- License and registration fees
- Garage rental
- Most lease payments
- Interest on a car loan
Remember, you can only deduct expenses you actually incur. Estimates or approximations of expenses won't fly with the IRS.
You'll want to keep all records that support the business expenses you deduct from your tax return. This can be credit card and bank statements, bills, cancelled checks, or even paper receipts that show the dollar amount, date, location, and the reason for the expense.
The IRS asks you to hang on to these records for three years after you file your return.
Examples of the standard mileage and actual expenses methods
Here's how the two methods compare when it comes to tax savings.
Say that, in 2021, you drive 18,000 miles total, while 12,000 of those miles were for work.
Here’s how much your car expense for the year amounted to:
- Fuel: $6,525
- Insurance: $2,200
- Maintenance and oil changes: $2,350
- License and registration fee: $230
- Vehicle depreciation: $3,500
- Interest paid on car loan: $2,000
- Total expenses: $16,805
Deduction under the standard mileage method
If you use the standard mileage method, you’ll find the amount of your deduction by multiplying your business mileage by the standard IRS rate for 2021, $0.56 per mile.
12,000 miles x $0.56 = $6,720
Deduction under the actual expenses method
To find the amount of your deduction under the actual expenses method, you first have to figure out how much of all the driving you did that year was for work.
12,000 business miles / 18,000 total miles = 66.7%
Next, you multiply that percentage by your total car expenses.
$16,805 expenses x 66.7% = $11,203
Which option saves more money?
Using the actual expenses option for income tax purposes will generally save you more — at least until you start driving well over the typical amount for freelancers.
If you’re willing to keep tabs on all your car-related spending, you claim your maximum deduction. Luckily, using expense tracking software like Keeper Tax reduces the hassle of tracking every transaction. With the app, you’ll get an annual summary of all your vehicle expenses.
Thanks to high-tech solutions like this, tracking your actual car expenses will generally save you both time and money.
Special note on leased vehicles
Do you lease the car you use for work? Then, you should be aware of a specific requirement when choosing your method.
Opt for the actual expenses in the first year you used your leased car for business, and you’ll have to use this method for the entire lease period. You won't be able to switch to the standard mileage method.
If you don’t expect the amount you drive for work to change very much from year to year, then it’s perfectly safe to stick with the actual expenses method if it saves you more.
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At Keeper Tax, we’re on a mission to help freelancers overcome the complexity of their taxes. That sometimes leads us to generalize tax advice. Please email firstname.lastname@example.org if you have questions.