Taking a Mileage Deduction After Reimbursement

Stephen Fishman
Tax expert and contributor MileIQ

The mileage deduction can be relatively straight forward but there are always interesting wrinkles that pop up. I'm often asked about the eligibility of taking a mileage deduction after reimbursement. Let's dive into what's allowed and what you should watch out for.  

When You Can Take The Mileage Deduction After Reimbursement

Let's say you're an independent contractor and you bill your clients 50 cents per mile on an expense sheet. Can you claim a mileage deduction on your annual income tax return?  

If you also charged clients for travel expenses and were fully reimbursed, you can't take a tax deduction for fully-reimbursed expenses. The 50 cents per mile clients pay can be deducted by your clients. However, that doesn't fully reimburse you for your driving costs, so you may deduct the amount your driving costs exceed 50 cents per miles. You can do this in two ways.  

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You can use the standard mileage rate to calculate your mileage deduction, which is 54 cents per mile in 2016. If you do this, you can deduct 4 cents for every business mile in 2016.      

Alternatively, you may use the actual expense method. This allows you to deduct what you actually spent on your car. It requires you to keep track of all your car expenses such as gas and repairs. You add all these expenses together and then reduce them by the amount of non-business driving.  

For example, if you drove your car 50 percent of the time for business, you would reduce your actual expenses by 50 percent. You may deduct the amount that this sum exceeds your total reimbursements for the year.  

If you use the actual expense method, you must be able to prove to the IRS the total amount of your expenses and reimbursements for the entire year. If you use the standard mileage rate, you do not have to prove that amount but you do need to keep mileage logs that will pass IRS scrutiny.

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