The IRS mileage rate determines how much money you can write off when you use your vehicle for business. For many businesses, mileage is the largest deductible cost on their tax return.
There are two ways to calculate your mileage: The standard mileage rate, and the actual expense method. We’ll compare the two, so you can choose which is right for your business.
What is the standard mileage rate for 2019?
The IRS increases the standard mileage rate (or mileage reimbursement rate) each year to keep pace with inflation. The mileage rate for the 2019 tax year is $0.58 per mile driven. For the 2018 tax year, the rate was $0.545 per mile.
The IRS has released the new standard mileage rates for the year 2020 at $0.575 per mile.
Who qualifies for business mileage?
Up until 2017, anyone could write off mileage expenses they incurred for business purposes as itemized deductions on their tax returns. Now, since the passage of the Tax Cuts and Jobs Act, only self-employed people can write off business mileage.
So, if your moving business is a limited liability company (LLC) with two panel trucks, you can write off the cost of mileage for both work vehicles on your tax return.
And if your Etsy store is a sole proprietorship and you’re the only employee, you can write off the mileage incurred when you drive to the post office to mail packages.
Keep in mind, the miles you drive between your home and your regular place of work don’t count as business mileage.
Mileage can either be written off in part or in whole. If you have a dedicated vehicle that you only use for work purposes, you can write off 100% of your mileage on your tax return. If you have a personal vehicle that you sometimes use for your business, you can write off only the miles driven while you work.
Standard mileage rate for service of charitable organizations
Outside of running your business, if you drive your vehicle while volunteering for a charitable organization, the IRS gives you a break. So long as vehicle expenses are not reimbursed by the organization, you can claim a deduction. The standard rate for charitable purposes is 14 cents per mile driven.
Standard mileage rate vs. the actual expense method
There are two methods of writing off mileage:
The standard mileage rate
The standard mileage rate writes off a certain amount for every mile you drive for business purposes. So, for the 2019 tax year, you’d be able to write off $0.58 for every mile you drive.
Every vehicle-related expense you incur is rolled into that deduction—so you can’t use the standard mileage rate deduction, and then also deduct the cost of gasoline, insurance, or maintenance.
The actual expense method
The actual expense method requires you to record every expense related to your vehicle—from gasoline to new tires—and report the total on your tax return. If 100% of your use of a car is for business purposes, you can deduct 100% of your expenses. If you only partly use your car for business purposes, you can deduct a percentage.
So, if 15% of the miles you drove in 2019 were for work, you can deduct 15% of your total vehicle-related expenses per year on your tax return.
Unlike the standard mileage rate, the actual expense method takes some number-crunching in order to figure out how much you can deduct.
Here’s an example: Say you drove 10,000 miles total in your Prius last year, and 2,000 of those miles count as business use of a car. In total, you spent $1,200 on vehicle-related expenses.
(2,000 / 10,000) x 1200 = 240
When we divide 2,000 by 10,000, we get 0.2 (or 20%). Multiplying that by 1,200 gets us 20% of the money you spent on your car last year—or $240. So you can deduct $240 on your tax return for business mileage.
Choosing standard mileage rate or the actual expense method
Whether you opt to deduct the standard mileage rate or use the actual expense method depends one which approach saves you more money. Your best bet is to spend one month tracking your vehicle expenses, as well as business mileage on your vehicle. Then do the calculations to find out what you can deduct using each method.
Is car use a variable or actual cost?
Whether you track business mileage as a variable cost or an actual cost will depend on how you use the vehicle for business travel.
Quick refresher: Variable costs increase or decrease according to how much business you’re doing. Actual costs (also called actual expenses or fixed costs) stay the same regardless of how much business you do.
If you drive around all day in your panel truck dropping off orders, your business expenses for that vehicle will increase the more deliveries you make—and the more income you earn. In that case, it’s a variable cost.
If you have to visit the same job sites on a regular basis to do scheduled maintenance on your customers’ photocopy machines, you would record your mileage as an actual cost. In this case, your mileage won’t increase or decrease according to your income—you’re paid a flat rate for doing maintenance.
Keep in mind, this actual cost is still variable in practice—it will fluctuate according to gas prices. But since it isn’t tied to your income, it’s still considered a fixed cost.
How to deduct mileage on your taxes
The method and forms you use to deduct mileage expenses on your taxes depends on your business structure.
Sole proprietorships and LLCs
Sole proprietorships and single-member LLCs report their mileage deduction on Form 1040, Schedule C, as a miscellaneous itemized deduction.
The process is slightly more complicated than it is for sole props and LLCs. For corporations, you must take into account employee use of a car.
If the employee owns the vehicle
Until the TCJA, employees had two choices.
They could claim reimbursement for vehicle costs from the corporation, either by reporting the actual costs, or by collecting a Fixed and Variable Rate Allowance (FAVR). Whether they claimed actual expenses, or got quarterly FAVR payment from their employer, they could deduct it on their tax return.
They could choose not to get reimbursed, in which case they’d write the unreimbursed expenses off their taxes.
Starting in the 2018 tax year, employees can no longer write off unreimbursed vehicle expenses.
If the corporation owns the vehicle
The corporation can write off the vehicle expenses using the actual expense method only. Write offs are limited to business use —so if the employee uses it for purposes other than business travel, that percentage of use can’t be written off.
One exception is if the corporation treats the personal use percentage as part of an employee’s salary. In that case, 100% of the vehicle’s business expenses can be written off.
Partnerships report their mileage deduction on Form 1065.
The rules for partnerships deducting business use of a vehicle are the same as they are for S corporations. One difference: If a partner has unreimbursed use of a business vehicle as part of the conditions of their partnership agreement, they can claim it as an unreimbursed partnership expense on Schedule E of their Form 1040.
LLCs may opt to file as S corporations or partnerships, in which case they should use the forms required for those respective business structures.
Mileage is just one of many tax deductions you may qualify for. For more inspiration, check out our big list of small business tax deductions.