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Business Miles Vs Commuting Miles: How It Matters for Your Taxes?
Business Miles Vs Commuting Miles: How It Matters for Your Taxes?
If you work for yourself and drive a lot for work, some of the time you spend behind the wheel could save you serious money. Just by doing the driving required to get the job done, you can be racking up mileage that you can write off from your 1099 employee taxes.
So while you're catching up with your mom over the phone (hands-free, of course) or downing a drive-through breakfast, you'll be able to lower your tax bill with every mile that passes.
It's important to keep this in mind when you're driving, so you can be prepared for tax time. But you also have to know the difference between miles for commuting and the miles IRS requirements allow to be considered a business expense.
Key takeaways:
- You can write off miles driven for business but not commuting miles
- One of two methods will save you more money when deducting miles for business
Table of contents
What counts as business mileage?
Let's start with the kind of mileage that saves you money. Business miles are the distance that you travel from one workplace to another. These are the only miles IRS regulations allow to be deducted, and they're one of many car-related tax write-offs the IRS lets self-employed people claim.
But this applies to more than just the obvious examples, such as freelance delivery and rideshare drivers. If that's your gig, you're probably well aware of the miles you can deduct as a business expense. But you can also deduct mileage if you're a freelance nurse, for example, and you have clients in several places around the metro area.
When you finish your regular care routine with one client and drive to another client later that day, every mile you travel is tax-deductible. And, there are situations where self-employed individuals and freelancers can deduct mileage they might not expect to be able to. Think of business lunches or supply runs to Home Depot or OfficeMax. If you have a client meeting across town, you can write off the miles you drive to get there.
What counts as business mileage?
Now, you're probably thinking, "What about my commute to work?" The miles to and from your work when you leave home are the kind you can't write off your taxes. If you're driving between your house and a building where you work, the miles you drive to do that are not tax-deductible.
What you might be thinking now if you work from home is, "Is mileage considered an office expense?" If you're not driving anywhere to actually arrive at work, then you simply don't have any miles to write off. To keep things fair for people who do have to drive somewhere in order to go to work, there's a rule in place that makes your first and last trip of the day non-deductible.
So if you work from a home office, and your mileage from home to work is essentially zero, your first trip away from your home office might be to grab groceries to make lunch or to pick up some new printer cartridges, the IRS won't let you deduct those miles. But, if you go to a business meeting in the morning and stop for office supplies after, that second trip can be claimed as a self-employment tax deduction.
Business miles vs commuting miles
Sometimes it's unclear what the difference is between different kinds of trips and whether they can be written off from your taxes. Here's an example that makes business miles vs commuting miles crystal clear.
Imagine you drive six miles roundtrip to a coworking space where you're a member every weekday for a total of 30 miles a week. Every Thursday, you drive three miles from the coworking space to collect inventory from a supplier for your online selling business, then five more miles to a storage space that you also rent.
That's 10 miles driving for your business every week and 10 miles that can give you a tax deduction. If you're paying estimated taxes, these tax deductions can help lower your taxable income.
What is the IRS tax mileage deduction?
There are actually two ways to deduct business mileage. You can apply a standard business mileage rate to your driving for the business overall, or you can choose to deduct your actual vehicle expenses, including mileage.
Standard tax mileage deduction
The actual expenses method
This method is usually a better deal for freelancers whose work isn't totally car-related. With this method, you track what you actually spend in order to drive your car throughout the year.
It's a little bit like the home office deduction, where it depends on a percentage. In this case, the important number is the percentage of the time you spend driving that is used for work. Did you spend 25% of the time you used your car on traveling to business meetings and 75% on normal personal trips like running errands and visiting friends?
In that case, you could deduct 25% of the car-related expenses that the IRS allows from your taxes. These are things like gas and insurance, but you can also write off the amount that your car depreciates in value from your taxes as a business expense if you own the car. A few of these are allowed to be taken on top of the standard deduction, by the way: parking and tolls, car washes and DMV fees.
The actual expenses method is all about keeping good records, so there's more effort involved than taking the standard deduction, but like so many things in life that take more work, the payoff is definitely higher. To make the paperwork easier, FlyFin automatically tracks all your expenses and finds all possible deductions. No more spreadsheets or saving receipts.
The actual expenses method does come with some restrictions, however.
- You can't be driving more than four cars at the same time
- You have to choose the actual expenses method the first year that you use your car for work, although you can switch methods in subsequent years
- You can't use it if you lease the car
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