Another year of driving means only one thing — cha ching! The sound of another mileage deduction. Drivers who keep an accurate mileage log can enjoy the sweet advantages of claiming a mileage tax deduction. This savvy financial decision allows qualified drivers to write off gasoline costs, wear-and-tear, insurance, and even depreciation by using the standard mileage rate. All these factors and more get taken into account when calculating your next deduction. For 2021, the standard mileage rate is 56 cents per business miles driven. Here’s exactly what you need to know.
Of course! As long as you keep a detailed log of your drives. Mileage tracking may sound intimidating at first, especially if you intend to keep a paper mileage log. But there’s actually a really easy way to increase your deduction. All you have to do is download MileIQ! With the use of a mileage tracking app like MileIQ, drivers can quickly learn how to track miles for business, charity, medical, and personal drives too. Once you make the switch to automated mileage tracking with your mobile device, you’ll have a full report to hand to your tax professional.
The IRS has specific rules that you’ll need to follow in order to claim a mileage tax deduction. The 2021 IRS rules offer two options for deducting car expenses — the standard mileage rate and the actual expense method. Both options factor in car costs yet in different ways. For now, we’ll focus on the standard mileage rate which requires you to keep diligent track of your drives throughout the year. The best way to do this is with a contemporaneous mileage log, which details an accurate account of each drive you take. So, let’s do the math.
You can calculate your mileage tax deduction for 2021 by multiplying your total business miles by the standard deduction rate of 56 cents. It’s that easy! MileIQ makes gathering your total mileage stress-free too thanks to CVS and PDF reporting. You’ll have all the documentation you need, including start and end times, classification and purpose, distance, monetary value of mileage, and even parking and tolls.
Example: An independent salesperson who drove 20,000 miles for business during 2021 can determine their mileage deduction by:
The IRS will also want to know your starting odometer reading, your commuting miles and your personal, non-commuting miles. If you're a W2 employee, there are scenarios where you can still write off business miles. You can learn more about that in this article about mileage reimbursements.
If driving is a requirement of your job, it’s more than likely you qualify for mileage deduction. With that in mind, the IRS only lets you deduct trips that are for business purposes. That means you can deduct drives for business-related errands, such as visits to clients, travel from your office to a work site, the bank, post office, or company meeting. Here’s the main way to know if you qualify. If you fall under the following categories:
Apart from the responsibilities of your main job, the IRS permits mileage deduction for temporary job sites as well. A temporary work location is a short-term job that lasts less than one year. You can also write off odd jobs and side-gigs like babysitting, pet car, and lawn services. As long as you keep sufficient records of these drives for the 2021 tax year, you can expect trouble-free filing.
However, restrictions to the standard mileage rate deduction do apply. You must use the standard mileage rate the first year you use a car for business. If you fail to do so, you are stuck using the actual expense method for the lifespan of your vehicle. You can also deduct interest paid on a car loan, parking fees, and tolls for business trips, but you can't deduct parking ticket fines or the cost of parking your car at your designated place of work.
We know there is a lot to unpack when it comes to mileage tax deductions. But the tax expats at MileIQ make it their mission to inform readers on the benefits of mileage logging and why you should do it for taxes. Whether you choose the standard mileage rate or give the actual expense method a shot, that’s up to you! Just know the only way you can claim a mileage tax deduction in 2021 is if you have the records to prove it.