Whether you’re a part-time Uber driver, a full-time truck driver or you occasionally do deliveries on weekends, you’ve got to keep track of your miles. Doing so allows you to deduct your business vehicle expenses, which can seriously lower your tax burden. Depending on what type of driver you are, there are various ways you can use your mileage log and the IRS’s self-employed mileage deduction to your advantage.
Choose a Method
First you need to decide which deduction method to use. The IRS gives you two options: the Standard Mileage Rate Method and the Actual Expenses Method. You won’t be able to take both deductions, so you need to evaluate which will bring you the biggest benefit.
The Standard Mileage Rate Method is the simplest method for calculating your vehicle-related deductions. For the 2016 tax year, the rate is 54 cents per business mile. (It changed to 53.5 cents for 2017). That means if you drove 10,000 business miles in 2016, you’re tax deduction would be $5,400. If you drove 30,000 business miles, you’re tax deduction would be $16,200.
To claim this deduction, you need to keep a detailed mileage log that includes dates, start times and end times, the activities involved, and the beginning and ending odometer readings. With the help of a mileage and expense-tracking app like the one offered within QuickBooks Self-Employed, you can do this automatically and integrate it with your other deduction tracking. The app also allows for easy categorization based on business or personal trips, and won’t drain your smartphone battery.
The Actual Expenses Method allows you to deduct your vehicle’s actual expenses. Eligible expenses include:
- Lease payments
- Registration fees
- Garage rent
- Parking fees
This method also requires a detailed log. Using this method, you can only deduct the portion of the costs that are associated with your self-employed work. For example, if your total actual vehicle expenses for 2016 are $3,000 and you used the vehicle 75 percent of the time for business (3,000 x .75), the allowable deduction would be $2,250.
Calculate the Costs
Unfortunately there is no easy way to select the best method for you without calculating both. But there are a few general guidelines that can help you understand where you may match up.
If you drive fewer than 10,000 miles a year, the Actual Expenses Method may be right for you. In general, some vehicle expenses, like depreciation, insurance and interest, are pretty much fixed costs. For example’s sake, say your fixed costs for the year amount to $4,800 and you drove 2,000 miles (all for business).
Standard Deduction: 2,000 x .54 = $1,080
Actual Expenses Deduction: $4,800
If you drove a bit more — say 8,000 miles (all for business) — your numbers would look a little different, though the actual expense method would still be in your favor.
Standard Deduction: 8,000 x .54 = $4,320
Actual Expenses Deduction: $4,800
In both situations, you’re better off using the actual expenses deduction. Part-time rideshare or delivery drivers, this may be the right method for you.
If you have an inexpensive car that gets great gas mileage, you may be better off with the Standard Mileage Method. For example, if you drove 30,000 business miles in 2016, your standard mileage deduction would be $16,200 — which is likely far greater than what it would cost you in actual expenses to keep the car running.
The standard deduction may be the most favorable deduction method for full-time rideshare or truck drivers.
Again, it’s best to calculate using both methods before deciding which one will yield the larger benefits. Using accounting software like QuickBooks Self-Employed can help you automatically track your mileage, automate your deductions and calculate both methods For more tax tips and self-employment solutions, visit QuickBooks Self-Employed Center.
Theresa Todman, Managing Partner/CEO of B&M Financial Management Services, LLC . Theresa specializes in bookkeeping, accounting, QuickBooks solutions, small business tax issues and consulting.