Mileage tax deduction for small business: How to calculate and deduct

Mileage tax deduction for small business: How to calculate and deduct

Amy Beardsley
By Amy Beardsley
Mar 27, 2024
1 min read

The mileage tax deduction can put gas in the tank of your small business’s financial efficiency.

This Federal tax deduction available to the self-employed and small business owners can help reduce taxable income and deduct vehicle expenses incurred for company-related driving.

But there’s a catch: The rules around what’s deductible, the standard mileage deduction rate and how to claim this business transportation deduction on your tax return can change annually.

Jump ahead to read what’s current this year, including:

What is the mileage tax deduction?

The standard mileage tax deduction is an IRS rule that allows small business owners and self-employed individuals to deduct vehicle expenses when using a personal car or other vehicle for business purposes. This can include:

  • Meeting with clients.
  • Driving between business locations.
  • Driving from the office to a worksite.
  • Running business errands.
  • Driving to trade shows, events and more.

Commuting from home to your workplace, however, doesn’t qualify. And if you’re a rideshare driver, your trip to pick up the first passenger and the drive home after the last drop-off doesn’t count, either.

How to claim mileage on taxes

The IRS rules around the business use of a car and the mileage tax deduction aren’t complicated. 

First, choose how you want to calculate your deduction.

1. The standard mileage deduction

This is the easiest way to calculate vehicle expenses for business use since you don’t have to track all vehicle-related costs. To qualify, you must own or lease the car and record the number of miles you drive during the year. 

If you choose this calculation, jot down the date, odometer reading, starting and ending location and trip purpose. Once you have your total annual miles of business driving, multiply that number by the annual IRS mileage rate to see what you can deduct from your return.

2. Deduct actual expenses

In this scenario, you calculate the actual cost to operate the car and use it for business. Keep each receipt for car expenses such as gas, oil, repairs, tires, registration fees and personal or commercial auto insurance.

If your business driving qualifies for both, the IRS suggests that you tally up both the standard mileage deduction and actual expenses to see which one gives you the larger, more favorable deduction.

The self-employed mileage deduction

If you’re self-employed, a freelancer, or operating as a sole proprietor, the mileage deduction is one of several independent contractor tax deductions that can help lower your taxable income.

When you’re self-employed, a deduction works like the standard mileage deduction: You track business miles using your personal vehicle for work throughout the year and apply the standard IRS mileage rate when you file.

There is one exception. Under normal circumstances, driving from home to your place of business doesn’t qualify for the deduction. But if you work from home, the IRS lets you deduct the mileage between your home office and another work location, or the distance you travel to visit clients.

6 tips on deducting mileage for business

Whether you’re tackling small business taxes as a beginner or you’ve been at it for years, these six tips can help guide you through the mileage tax deduction this year.

  1. Get the right auto insurance. If you use your vehicle for business regularly, your personal car insurance policy may not be enough. Commercial auto insurance is designed to help protect your small business if you deliver goods like pizza or flowers, carry equipment you use for work or drive to job sites.
  2. Use a mileage tracking app. Apps can use GPS to record trips and mileage and categorize them as business or personal.
  3. Keep a backup log. The IRS requires detailed documentation of business mileage. A physical log as a backup can be helpful if digital records are lost.
  4. Know what qualifies for business mileage. Not all business-related driving is deductible. Read the rules and be clear about what the IRS considers business mileage.
  5. Periodically review your mileage log. Check your log regularly to help avoid discrepancies and ensure that you record all business driving.
  6. Consider your actual expenses. While the standard mileage rate method is simpler, sometimes the actual expense calculation (where you track all vehicle-related expenses) can give you a higher deduction. Track both calculations to determine the best for your small business.

Lastly, consult a tax professional. Tax laws can be complex. Consulting a tax professional can ensure you maximize your deductions, especially if you’re filing small business returns for the first time.

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Next Insurance does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors for personalized guidance.

Amy Beardsley
About the author

Amy Beardsley, insurance expert and contributing writer at NEXT Insurance, is a content marketing writer who specializes in small business coverage. Leveraging her background in the legal field, Amy brings a deep understanding of laws, regulations, and compliance requirements to her work. As a content marketing writer since 2016, she has contributed to publications like Legal & General, Berkshire Hathaway Specialty Insurance, Insurify, and NerdWallet. Her work has also appeared in CNBC, Kiplinger, and US News. When she’s not writing, Amy enjoys playing cards with her family and experimenting with new recipes.

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