You may either use the standard mileage rate or compute your real expenditures to determine your mileage for your tax return. These are the two options available to you.
Standard Mileage
Using the standard mileage rate is easier to calculate the amount of money you may deduct from your taxes. It is not based on the real expenditures you incurred but on the miles you drove. You maintain a record of the miles you travel for reasons permitted by the IRS. After that, multiply each number by the appropriate mile rate.
For instance, if you drove your car for IRS-approved business activities for 1,000 miles in 2021, you would need to increase those miles by $0.56 per mile. It will be possible for you to deduct $560. You need to choose this option during the first year you use the automobile for business to be eligible to utilize the standard mileage rate for a car you own. After that, you can deduct expenses based on the standard mileage rate or the actual costs incurred in consecutive years.
If you lease a vehicle and opt to be charged based on standard mileage rates, you will be required to continue using that method until the end of the lease. If you go with this approach, you will have to maintain track of the miles you drive to figure out how much of a deduction you are entitled to at the end of the year. You may either maintain a paper mileage journal in your car or download an app that tracks mileage to maintain track of it.
Actual Costs
You can deduct the expenses incurred by using your car rather than the kilometers are driven on business. You are only allowed to deduct the expenditures associated with using the car for business purposes if you also use it for personal reasons. You may choose to add any or all of the following costs:
- Gas
- Insurance
- Oil, tires, and repairs
- License and registration fees
- Costs associated with the vehicle's depreciation or lease payments that are proportional to the number of kilometers driven for business reasons
When it comes to documenting the costs associated with your automobile, you must retain documents such as receipts. They will allow you to provide evidence supporting your deduction if you are audited. After submitting your tax return, you must maintain previous tax records for a minimum of three years.
Who Can Deduct Mileage for Business?
You are not eligible to take a deduction for miles driven during business if you travel from home to where you typically operate. Your company may foot the bill for some of the travel costs associated with your job. For example, if you have to drive to a client meeting from your principal place of employment, your employer could foot the bill.
On the other hand, you are not permitted to deduct any mileage expenses for which your company does not pay you back. The itemized deduction for unreimbursed employee expenditures was put on hold from 2018 to 2025 due to the Tax Cuts and Jobs Act (TCJA). There are just two exceptions to this rule:
- Reservists in the armed forces
- Employees at the state and municipal levels who are paid on a fee basis
- People who have costs connected to their jobs because of an impairment
- Some members of the performing arts
If you are self-employed, however, the regulations differ from those that apply to employees. Even if you run your business out of your home, you won't be able to take a deduction for your mileage if you commute from your home to your primary place of employment. However, you can take a deduction for mileage if you travel from your place of employment to meet with customers or visit a project site. Tax regulations for ride-share drivers are not much different. Drivers for ridesharing services can deduct mileage expenses based on IRS's standard rate or actual expenditures.
Who Can Deduct Mileage for Moving?
Only active-duty service members assigned to a permanent change of station can deduct moving-related mileage expenses from their taxable income. Otherwise, you can't take this deduction for your vehicle's mileage. The TCJA placed a five-year moratorium, beginning in 2018, on the ability of taxpayers who are not members of the armed forces to deduct the cost of relocating.
Who Can Deduct Mileage for Medical Reasons?
You are only eligible for a tax deduction for medical expenses if your unreimbursed medical charges exceed 7.5% of your adjusted gross income (AGI). You can deduct your mileage at the usual rate of 18 cents per mile in 2022 and 16 cents per mile in 2021. Alternatively, you may deduct the expenses incurred for gasoline and oil. It is also permissible to take a deduction for tolls and parking fees.
