Deducting Business Mileage: The Standard Rate vs. The Actual Expense Method  

Deducting Business Mileage

Deducting the miles you travel for your business is a great way to lower your taxable income. But if you’re like most people, you use the same vehicle for business and personal travel. This can make the deduction a little more complicated.  

First, you need to figure out how many miles you traveled for business and how many you drove for personal travel. Then you will need to choose a method to calculate your deduction. You will either use the standard mileage rate method or the actual expense method to find your deduction amount. 

How the Standard Rate Method for Mileage Works  

The standard mileage rate method is very straightforward. Simply multiply the total business miles you drove all year by the rate for that tax year. For 2018, the standard rate for mileage is 54.5 cents per mile. Let’s say you drove 5,000 miles for Uber. According to the standard method, you would be able to deduct $2,725 from your taxable income, because 5,000 x 54.5 cents = $2,725. 

How the Actual Expense Method for Mileage Works 

Using the actual expense method is more in-depth than the standard method. First, you will need to determine how many of the miles you traveled were for your business. Then you’ll need to find what percent of your total miles that equals. For example, if you drove 10,000 miles in 2018 but only 5,000 were for business, then 50% of your miles were business-related.  

Next, you will add up all your vehicle-related expenses (gas, oil, maintenance, car washes, repairs, insurance, etc.). This is why keeping your receipts is so important to this method. Once you have a total dollar amount, you will need to multiply this by the percent you calculated. In the example above, it was 50%.  

How many miles can you write off as a deduction?  

There is no limit to the number of miles you can deduct, but they must be business-only miles. These include: 

  • Home to a client appointment or open house 
  • Home to a business conference 
  • Home to business out of town 
  • Home to a temporary work location  
  • Your office to a client appointment or open house 
  • Your office to a business conference 
  • Your office to business out of town 
  • Your office to a temporary work location 

You cannot deduct miles that you travel between your home and your regular office.  

Read also Rideshare Drivers: 5 Tax Mistakes You Must Avoid 

The standard mileage rate method may be right for you if: 

  • You don’t keep diligent records and receipts for your vehicle expenses throughout the year. Using the standard method, the only record you will need is your mileage.  
  • Your vehicle gets good gas mileage and did not require any major repairs in the year. 

The actual expense method may be right for you if: 

  • You used the actual expense method the first year you claimed the mileage deduction. This is because you cannot switch from the actual expense method to the standard method if you used the actual expense method the first year you used your vehicle for business. 
  • Your vehicle is not fuel efficient, so you spend a lot on gas. 
  • Your vehicle needed expensive repairs during the year. 

 This article is up to date and accounts for tax law changes for tax year 2018 (tax returns filed in 2019). Learn more about tax reform enacted under the Tax Cuts and Jobs Act here.