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Keeping Track of Business Mileage for IRS Tax Deductions
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Keeping Track of Business Mileage for IRS Tax Deductions
The IRS lets you deduct mileage expenses from your taxable income if you drive for your work. Mileage is an itemized deduction, and one of the most important deductions for those who drive for a living.
Many freelance delivery drivers and self-employed full-time drivers use the business mileage deduction to lower their income. For you to take advantage of it, the IRS requires you to track your business mileage.
Tracking business mileage can be tricky, especially if you just started as a delivery driver. But with companies like Uber and DoorDash, it's easier than ever to become a delivery driver, working as a self-employed individual, freelancer or 1099 contractor.
Key highlights:
- You have to track your business mileage to get an accurate tax deduction
- The IRS issues a mileage rate every year for the actual deduction method
- There are IRS penalties for inaccurate mileage reporting
Table of contents
What’s the difference between commuting and business mileage?
It’s a common misunderstanding to count your commute mileage as a business deduction. A lot of freelancers, especially in the creator economy, rent space in a co-working facility for work, but the commute to this workplace from your home can’t be deducted from your taxable income.
In contrast, business mileage is the amount of distance a person travels to different locations for work. This can be mileage for trips to client locations for work-related purposes, trips to deliver products or to different job sites, if you are working as a self-employed plumber, for example.
How can I track mileage?
Once you get the basics down, tracking business mileage is a piece of cake. Here's what to keep in mind:
Mileage logbook
What to record in a mileage logbook
IRS 2022 Mileage Rates
Every year, the IRS issues a new standard mileage deduction rate, and in 2022 it was bumped up to 58.5 cents per mile.
Based on the IRS rate, you can calculate your mileage expenses. The more you drive for business, the higher your costs get, which lets you take a larger deduction from your taxable income. For example, if a self-employed delivery driver travels 30,000 miles a year, they can write off $17,550.
You simply multiply the number of miles with the business mileage rate 2022 to get the exact amount. In this case it's 30,000 X 58.5 cents/mile.
You can include this other itemized business deductions. This is where you can use FlyFin to never miss a single deduction and get expert CPA support to guarantee a 100%-accurate tax filing at a fraction of the cost.
FlyFin also tracks all your other business expenses automatically using A.I. to find every possible tax deduction. These deductions can be vehicle-related expenses, maintenance costs, parking fees and vehicle depreciation for delivery drivers.
Be sure to track your miles for taxes accurately. If you overestimate your mileage deductions, you might be on the hook for accuracy-related penalties that the IRS might ask you to pay.
What are IRS accuracy-related penalties?
If you overestimate your tax write-offs without giving proper proof, the IRS can require you to pay a penalty. In the case of mileage tax deductions, they are usually for accuracy-related penalties.
If your total mileage with proper proof is 45,000 miles for the year, but your actual mileage was 49,000, you can only claim a deduction for 45,000 because that's what you have proof for. If you file for deductions using 49,000 miles anyway, the IRS will issue a fine for "Negligence or Disregard of the Rules or Regulations Penalty." According to the IRS, negligence or disregard happen when taxpayers carelessly, intentionally or recklessly ignore tax rules and regulations.
The penalty for negligence is 20% of the underpayment amount as well as interest on the total amount for each month you delay the payment. If your underpayment amount is $500, then you’ll have to pay the underpaid amount ($500) and the penalty amount ($100), which brings your total to $600.
The interest rate is usually between 0% and 8%, depending on individual factors like your business status and whether you have an LLC, sole proprietorship, a C-corporation or an S-corporation. It also depends on which quarter of the year you're in, as you can see below. Interest on underpayment 2022:
Interest on underpayment 2022:
Be careful not to delay your underpayment for the first quarter, or you will be required to pay 3% interest, which will keep increasing by 1% every quarter.
Interest on overpayment 2022:
Categories
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Underpayment (corporate and self-employed)
3%
4%
5%
6%
Underpayment (large corporate units)
5%
6%
7%
8%
Categories
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Self-employed Overpayment
3%
4%
5%
6%
Corporate Overpayment
2%
3%
4%
5%
GATT Overpayment exceeding $10,000
0.5%
1.5%
2.5%
3.5%
Internal Revenue Code (IRC) 6603 Deposit (Federal Short-term Rate)
0%
1%
2%
3%
What’s FlyFin?
FlyFin is the #1 A.I.-powered tax app for freelancers, gig workers, independent contractors and sole proprietors. FlyFin tracks all your business expenses automatically using A.I. to find every possible tax deduction.
Then, our CPA team files a guaranteed 100% accurate tax return for you – to save you a couple of thousand dollars and a ton of time on your taxes.
Download the FlyFin app and have your taxes filed in less than fifteen minutes, saving more money on your taxes than last year, guaranteed.
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