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What is the car mileage tax deduction?
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What is the car mileage tax deduction?
Having a car as a self-employed individual can be one of your biggest assets during tax season. There are many car mileage tax deductions you can take advantage of whether you’re a freelancer, independent contractor or gig worker.
If you use your car for your business, it can be one of the largest deductions you can take when you’re filing your taxes. Picking up passengers, driving to business meetings and delivering packages can all be write-offs that help lower your tax bill.
You can claim this tax write off with the standard mileage deduction or the actual expenses deduction, but this will depend on how much time you are willing to put into tracking your expenses and recording your mileage, and how much you drive for work.
Key takeaways:
- Car mileage can be a big tax deduction for self-employed individuals.
- You can claim this deduction with the standard mileage method or the actual expenses method.
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Who can claim the tax deduction for mileage?
Any self-employed individual can claim the car mileage tax deduction if they use their car for business purposes. The IRS only allows certain mileage deductions to be written off. For example, a Lyft driver can write off the miles driven from one passenger drop-off to another.
However, the drive from your home to your place of work and the final drive back to your home are not tax deductible as they are “commuting miles.” So, any mileage driven from your home to a workplace cannot be written off.
This car mileage tax deduction is not limited to rideshare or even delivery drivers alone. Even if you are a small business owner, influencer or freelance photographer, you can claim this deduction anytime you rack up business mileage.
A self-employment income tax calculator can be a handy tool to calculate your total tax liability. This is a good way to get ahead of your tax planning and make a list of all the expenses that you should be tracking year round.
If you need to make tax payments every quarter, use a quarterly tax calculator to make it easier. The IRS expects self-employed individuals to make these tax payments if they owe over $1,000 in tax in a calendar year.
If you’ve never heard of quarterly tax payments before, don’t worry. Use a tax penalty calculator to check whether you owe the IRS any money before they decide to come knocking at your door.
How to calculate the car mileage tax deduction?
As we mentioned earlier, there are two ways to claim the car mileage tax deduction – the standard method or the actual expenses method. In 2022, the rate was set at 58.5 cents per mile from January 1 to June 30. Then, because of rising inflation, the IRS increased the rate to 62.5 cents per mile from July 1 to December 31.
The standard mileage deduction for 2023 is 65.5 cents per mile for the whole year. To calculate the standard mileage deduction, you just have to multiply the total number of business miles you have driven by the standard deduction rate.
This is the easiest option for taxpayers who don't use their car a lot for work, as you don’t have to keep track of too many other car-related expenses. You just have to track your miles. There are several apps (some of them are free) that you can use to do this.
You can opt for the actual expenses method if you rely on your car a lot for your work. But this method requires you to keep track of every single car-related expense including car washes, gas and even insurance. You can also deduct lease payments if you lease your car. If you do end up using a paid mileage tracker app, you can write it off as a tax deduction, too.
To calculate this, you’ll need to figure out the business percentage of your car use and then multiply that by your total car expenses for that year. So, if you use your car 20% of the time for work, just multiply your total expenses by 20%. You can use a car & mileage tax calculator to do this.
Another thing to note is that if you’re trying to claim tax deductions on a leased car, you’ll need to stick with whatever type of deduction you chose in the first year.
If tracking all those car expenses seems extremely time consuming, try using FlyFin. Just link your expenses, and let A.I. find every possible deduction year-round, so you're ready when tax season comes. You can reach out to our expert 1099 tax CPAs 24/7 on the app with any tax questions, and they prepare and file your tax returns for you.
How can I claim car mileage on my taxes in 2023?
You will report your car mileage tax deductions on Schedule C, along with the other tax deductions you’re claiming. You should file this form alongside the standard Form 1040.
If you want to make the most out of claiming gas on your taxes in 2023, you’ll need to choose the deduction that makes the most sense for your business. If you drive a lot or have an expensive vehicle, taking the actual expenses method will be more useful in getting you a bigger tax break. Otherwise, you can’t go wrong with a standard mileage deduction.
What’s FlyFin?
FlyFin caters to the tax needs of freelancers, gig workers, independent contractors and sole proprietors. It offers a host of cutting-edge tax tools that help you quickly find deductions. You can also use tools like a home office deduction calculator.
FlyFin uses an A.I. to track all your business expenses automatically and find every possible tax deduction.
Once you have all your possible deductions in one place, our CPA team files a guaranteed 100% accurate tax return for you. It saves you a couple of thousand dollars and a ton of time on your taxes.
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