There’s a large population of freelance delivery drivers in the USA, and driving is the most important part of their business. Freelance delivery drivers also fall into the self-employed worker bracket because they have the freedom to choose the gigs they want and are not bound to one company’s payroll. Therefore, The IRS allows self-employed taxpayers to deduct the cost of mileage and other car-related expenses from their taxes as a business expense. Since there are two ways to calculate the mileage tax deduction, you don't actually need to use a mile tracker for taxes to claim this write-off.

• Standard Mileage Method - You can multiply your business miles driven by the IRS mileage rate of 65.5 cents (current IRS mileage rate).
• Actual Expenses Method - You can track the actual costs of operating your car. Qualified expenses for this purpose include gasoline, oil, tires, repairs, insurance, tolls, parking, garage fees, registration fees, lease payments, and depreciation licenses.

Fortunately, the driver tax deduction is not limited to Uber, Doordash or rideshare drivers. If you work primarily from a home office, the occasional supply run, client meeting or business trip also counts. The IRS considers your business driving mileage to be deductible from your taxable income. You don't have to drive year-round, either. If you happen to drive for office work only during the summer, you can write off car expenses during those months. You can't deduct the cost of commuting as a business expense. The IRS does not consider "commuting miles" as a business expense, so driving to and from your home and your workplace does not count. However, running a business errand is considered a valid expense.

The IRS claims that you can deduct the average costs of operating your vehicle as well as depreciation when arriving at the IRS mileage rate. If you take the standard mileage rate, you cannot deduct the actual expenses of operating your car. With the standard mileage deduction, you can keep track of how many miles you drive for work. Then, you multiply each mile by a standard amount set by the IRS. Maintaining a record will help you track 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.

In 2023, the standard mileage deduction rate increased to 65.5 cents per mile.

You can figure out the amount of your deduction simply by multiplying your business mileage by the standard IRS mileage rate of $0.655 (2023) per mile. Business miles x $0.655(current IRS mileage rate) = Business mileage tax deduction amount

The actual expenses method is slightly more advanced, as it helps you deduct a percentage of all your car-related expenses. Here, the challenge for you is to track all of your driving expenses yourself, and it requires you to keep accurate records. Qualified car expenses for this purpose include the following:

• ⛽️ Gasoline
• 🛢 Oil
• ⚫️ Tires
• 📝 Insurance
• 💳 Licenses
• 🗂 Lease payments
• 💵 Registration fees
• ⚒ Repair & Maintenance
• 🏘 Garage rent
• 🎫 Tolls
• 🚰 Car wash
• 🚘 Cost of the car

You can write off your car payments, and if you purchased it a few years ago, then you may even write off a portion of the car's original cost. It’s because the IRS allows you to deduct the depreciation cost of your car from your taxable income. However, the depreciation must have happened while you were using the car for business purposes. To figure out the amount of your deduction under the actual expenses method, you need to find out how much of all the driving you did that year was for work.To calculate, first take your business miles and divide them by your total miles to arrive at the percentage of deduction. Next, you need to multiply that percentage by your total car expenses. Then, take total car expenses multiplied by percentage of deduction.

In addition to car-related tax deductions, many other tax items are eligible for a write-off. The student loan interest deduction, for example, if you decide to pursue higher education to benefit your business. Or, the home mortgage interest deduction may be another possibility. You can take advantage of the home improvement deduction if you’re working on some home improvement projects. You might even be able to write off your credit card interest. There are many ways freelancers can save on taxes by taking advantage of tax deductions.

When it comes to deciding the ideal method, most freelancers believe that the standard mileage method will result in a bigger tax break. However, it’s not true. Both have their pros and cons, and you need to figure out which one of the two methods gets you a bigger deduction from your taxable income. Generally, the actual expenses method tends to be more beneficial than the standard mileage method since it comprises multiple deductions. There’s just one catch. If you go for the actual expenses method, you'll have to determine the business-use percentage of your car on your own, unless you use a tool like FlyFin. To figure the work mileage, you need to estimate how much of your driving mileage is business-related as opposed to how much is used for personal errands and commuting. The mileage deduction method is a good choice if you drive a lot.

With the Actual Expenses method, you need to maintain detailed record keeping for every single expense. The standard mileage method makes it simple to track deductions. All you have to do is keep a mileage log of business, personal and commuting drives for a tax year. You can simply take a picture of your odometer at the start of the year to have a better idea of the total mileage. If you own an expensive vehicle, you can expect a potentially larger deduction with the Actual Expenses Method. Plus, you can score a larger deduction if you don't have a lot of business miles per year. One of the biggest cons of the actual expense deduction is that you lose the flexibility of hopping between practices if you use this the first year the vehicle is in service. Below are a few situations that can help you determine which method will work best for you:

If you use the standard mileage method in your first year, you can choose whether to use the actual car expenses or standard mileage in the future. But if you use actual expenses the first year, you must continue to use actual car expenses for as long as you use that vehicle for work. For example, if you bought a brand new Ford Transit for your freelance delivery work, and you choose to go for the actual expense method the first year you use the car, you can’t switch back to the standard deduction method the next year. So it may be better to choose the standard expense deduction method in the first year and then compare your actual expenses with that amount. If you think your actual expenses will be more in future, you can choose it in the next year’s filing. If you are not sure whether your actual expenses will be more or less than the standard deduction, you can reach out to FlyFin CPAs for an answer from an expert. There is an exception: with leased cars, you have to use whatever method you choose the first year for the duration of the lease period.

The only way to ensure that you always choose the deduction method with a bigger value is to maintain a record of your costs the first year you use your car for business. When you do your taxes, add all the expenses to determine whether your deduction will be larger using the IRS mileage rate or actual expense method. If the decision seems too complicated, try using FlyFin. Powered by A.I. and backed by expert CPAs, A.I. will scan all your car expenses and categorize them as deductions based on your profession. Plus, the CPAs can help you determine which method will work best for you based on your expenses and deductions.