Do you drive yourself to work? If so, you might be thinking about additional expenses such as parking fees, gas, etc.
Here’s some good news for you! You can log your mileage and get your tax deducted!
You can now drive to work with the music blasting in the background without worrying too much by reading all there is to know about deducting mileage on taxes. Let’s get this started.
What Qualifies As Business Mileage?
Qualifying for requirements is always the first step if you want your tax to be deductible.
The term “business mileage” is quite expansive. To qualify, you have to drive to and from work, business meetings, site inspections, and anything business-related. This also includes going to the bank, eating for lunch, or getting supplies.
An additional benefit, such as a deduction for medical appointments, is added if you work for charitable organizations or the military.
| Here’s an example for you:
Let’s say you are a civil engineer and every day you have to go to different construction sites. Today you need to meet your clients and finalize your project. When the sun went down, you decided to go home after your meeting. The question is which of these are tax-deductible and which are not, according to the IRS. Tax-deductible: Travelling from construction sites and meetings. Non-tax-deductible: Travelling from meeting to the house |
How Do You Calculate The Mileage Tax Deduction?
The IRS gives you two different methods for calculating the mileage tax deduction. These are the standard mileage rate and the actual expense method.
Standard Mileage Rate
This strategy works best for self-employed people who log a lot of business miles in a given tax year.
The standard mileage deduction just requires you to keep track of the qualified distance travelled. The deduction for the 2022 per mile tax year is as follows:
| Medical Purposes | 18¢ |
| Charitable Organizations | 14¢ |
| Business | 58.5¢ |
So how does this work?
If you travelled $50,000 miles you can deduct up to $29,950 at the end of the year.
In addition to the regular mileage rate, you can deduct the following driving expenses and restrictions to take note of when using the standard mileage rate:
The Actual Expense Method
You can claim any car-related costs using the actual expenses approach. such as car maintenance, gas, etc. You may be able to deduct the depreciation value if you own the car, but if you lease it, you can use it to pay the leasing rates.
This strategy typically results in larger tax savings for freelancers who drive for work on a light or moderate basis.
The actual expense method relies on keeping track of your actual expenses. What you need to do is multiply the total expense percentage by the percentage of the work you did.
For example, if your car usage for work is 70% and your total expense is $10,000 multiply both and you can deduct $7,000.
The illustrations show the things that can be written off in your actual expense method.
Which Is Better: The Standard Mileage Rate Or Actual Expense Method?
For some people, the standard mileage rate will result in a bigger tax saving. For instance, when you drive for over 30,000 miles and when you are using an electric vehicle, which doesn’t require you to pay for gas. But these circumstances are not generally true for most people.
This is why we recommend that you use the actual expense method. It is easier to do and actually gives you bigger tax savings.
Keep in mind that you may only deduct costs that you actually spend. Estimates of expenditures will not be accepted by the IRS.
Keep any records that support the business costs you claim on your tax return. Credit card and bank records, invoices, canceled checks, or even paper receipts with the dollar amount, date, place, and reason for the expense might be used.
How to Keep Track of Your Miles
Keep Track of Your Odometer at the Start of the Tax Year
If you are using the standard mileage rate, you must record the total miles traveled in the tax year. Therefore, you must keep a record of the odometer at the start and end of the year.
But what happens if you buy a secondhand car? In this situation, keep track of the odometer reading from the time the vehicle is deployed until the conclusion of the tax year.
Keep A Record Of All Receipts
You do not have to save or record your mileage if you choose the actual expense method. Instead, keep copies of the receipts you have gathered with the product, date, and amount in them.
Frequently Asked Questions
What Is the Mileage Deduction for Volunteering?
For volunteers, the mileage tax deduction is the same as it was in 2021, which is 14 cents per mile.
Which Is Better For Taxes: Mileage or Gas?
The decision to claim mileage or gas for tax purposes is totally up to you. If you pick the regular mileage option, you may claim 58.5 cents per mile in 2022.
You must save all of your receipts if you wish to claim gas. Other vehicle-related expenditures, such as coverage, maintenance, and lease payments, can also be deducted. Keep in mind that you cannot claim both mileage and costs; you must select one.
What Is the Medical Mileage Tax Deduction?
The medical mileage tax deduction is now 18 cents per mile, up 2 cents from the 2021 amount. Active duty military personnel who transfer to a new post are subject to the same rate.
So, Should I Monitor Mileage At All?
The method by which you monitor mileage for tax purposes is frequently misunderstood. It is not necessary to keep paper receipts in order to claim car-related write-offs.
Don’t worry about it. If you are audited, you can always utilize your Google Maps location monitoring history or calendar activities to calculate the number of miles you traveled.
Doing your taxes may be stressful, whether you’re a full-time business owner or perform freelance work on the side. Reduce your tax bill through write-offs, such as standard or real-cost costs mileage deductions, to alleviate some of that tax-time worry.
Do not stop there. Check out BASC to see how it may help your business.