How to Calculate Mileage Expenses for Tax Deductions

Navigating tax deductions can seem complex, but understanding how to calculate mileage expenses can lead to substantial tax savings for individuals. Whether you are self-employed or an eligible employee, the miles you drive for business purposes may reduce your taxable income. Accurately tracking and reporting these costs is a key aspect of tax planning.

Understanding Eligible Mileage

Identifying what constitutes deductible mileage is the first step in claiming this tax benefit. Business mileage refers to the miles driven for work-related activities, distinguishing it from personal travel or regular commuting. These deductible miles must be considered “ordinary and necessary” expenses for your trade or business. An ordinary expense is common and accepted in your industry, while a necessary expense is helpful and appropriate for your business.

Examples of eligible business travel include trips to meet clients, travel between different work locations, or visiting temporary work sites. Running business errands, such as going to the bank or picking up supplies, also qualifies. If you have a qualifying home office that serves as your principal place of business, travel from your home office to other work locations is deductible.

Conversely, regular commuting miles between your home and a primary workplace are generally not deductible. This rule applies even if you perform business activities during the commute, like making work-related calls. The distinction hinges on whether the travel is part of your business operations or simply getting to your regular place of employment.

Calculating Mileage Expenses

To determine the monetary value of your business miles, there are two main methods: the standard mileage rate and the actual expense method. Choosing the most advantageous method can significantly impact your deduction. You cannot use both methods for the same vehicle in the same tax year.

The standard mileage rate is a simplified approach set annually by the IRS, which covers the costs of operating a vehicle, including depreciation, gas, oil, repairs, and insurance. For the 2024 tax year, the business rate is 67 cents per mile, increasing to 70 cents per mile for 2025. To calculate your deduction using this method, you simply multiply your total business miles by the applicable rate. This method is easier as it requires less detailed record-keeping of individual expenses.

Alternatively, the actual expense method allows you to deduct the actual costs of using your vehicle for business. This requires tracking all vehicle-related expenses throughout the year. Deductible costs include gas, oil, repairs, tires, insurance, vehicle registration fees, lease payments, and depreciation. If you use your vehicle for both business and personal purposes, you must prorate these expenses based on the percentage of business use. For instance, if 60% of your total mileage was for business, you can deduct 60% of your total vehicle expenses.

Choosing between the methods depends on your circumstances. The standard mileage rate is simpler, while the actual expense method might yield a larger deduction if your vehicle has high operating costs or significant depreciation. However, if you choose the actual expense method for a vehicle in its first year of business use, you cannot switch to the standard mileage rate for that vehicle in later years. If you start with the standard mileage rate, you may switch to actual expenses in a later year, but you must use straight-line depreciation for the vehicle.

Maintaining Required Records

Regardless of the calculation method chosen, maintaining accurate and detailed records is a requirement for mileage deductions. The IRS mandates records to substantiate your claims. These records should be kept contemporaneously, meaning at or near the time of the expense.

For each business trip, your mileage log must include the date, the destination, the purpose of the trip, and the mileage driven. While not strictly required by the IRS, recording your odometer readings at the beginning and end of the year can help verify your total mileage. Many taxpayers use logbooks, smartphone applications, or spreadsheets to track this information.

If you opt for the actual expense method, you must keep receipts for all vehicle-related expenses. This includes documentation for gas purchases, maintenance, repairs, insurance premiums, and any other deductible costs. These receipts, combined with your mileage logs, provide proof for your deduction. Tax professionals recommend retaining these records for at least seven years, although the typical audit period is three years.

Reporting Your Mileage Deductions

Once you have calculated your deductible mileage expenses, the final step is to report them correctly on your tax return. The specific form used depends on your tax situation. Self-employed individuals typically report their mileage as part of car and truck expenses on Schedule C (Form 1040), Profit or Loss from Business.

For most employees, unreimbursed business expenses, including mileage, are generally not deductible after the Tax Cuts and Jobs Act of 2017. However, certain qualified employees, such as Armed Forces reservists, qualified performing artists, or fee-basis state or local government officials, may still be able to deduct these expenses on Form 2106, Employee Business Expenses. It is advisable to consult IRS publications or a tax professional for guidance tailored to your unique filing circumstances.