How to Deduct Mileage: Standard Mileage Rate vs. Actual Expenses (Infographic)
Originally Posted: December 19, 2017
Last Updated: January 11, 2018
You probably use your vehicle a lot for business, and the mileage and maintenance can add up quickly. You can deduct your mileage on your tax return to help relieve some of those costs.
To take full advantage of a mileage deduction, keep detailed logs of your business travel (and remember that driving from your house to the office doesn’t count). It can be difficult to remember to keep detailed information about your trips, but there are some things you can do to make it easier on yourself:
- On January 1, write down your odometer reading. On December 31, write it down again, then subtract your first reading from your second reading to get your total miles driven that year.
- Write down all your business errands and meetings on your calendar. That way, if you forget to log a trip occasionally, you can go back and add it in. The IRS doesn’t have to accept reconstructed logs, however, so try to keep up with your log as much as possible.
Two Methods for Deducting Mileage
There are two ways to calculate your mileage deduction: using the standard mileage rate or using your actual expenses.
Standard Mileage Rate
The standard mileage rate (SMR) method is the easier of the two methods, both to calculate and to track. You just need to track the total miles driven, the total business miles driven, the dates of your business trips, your business trip destinations, and the purpose of each trip.
You then multiply your business mileage by the IRS standard mileage rate (54.5 cents per mile for 2018). For example, if you drove 5,000 business miles during the year, you could deduct $2,775.
Pros of Using the Standard Mileage Rate
There are several advantages to using the SMR, including:
- Using the SMR is the easier way to get a deduction for the business usage of your vehicle.
- If you use the SMR during the first year of your vehicle’s life, you have the flexibility to switch between the two methods. There is an exception to that: If you lease your car and use the SMR during the first year of the lease, you have to use it for the entire lease period.
- It’s simple to track your mileage. Just keep a log of your business, personal, and commuting mileage for the year.
Cons of Using the Standard Mileage Rate
Using the SMR isn’t always the right choice. It might result in a small deduction than using the actual expenses method.
Unfortunately, you can’t always use the SMR. You cannot use the SMR if
- you have a business with five or more vehicles being operated at the same time;
- you’re a rural mail carrier, who has a qualified reimbursement plan;
- you’re using an employer-provided vehicle;
- you claimed depreciation for the vehicle using some method other than straight-line depreciation;
- you claimed a Section 179 deduction on the vehicle; or
- you claimed the special depreciation allowance on the vehicle.
The actual expenses method is more complicated than the SMR, but it can result in a larger deduction. It allows you to deduct the depreciation and the actual cost of using your car.
If you use the actual expenses method, you have to keep meticulous records of your business and personal mileage, gas, oil, maintenance, depreciation, tag and registration fees, insurance, and everything else related to your car.
After you’ve calculated your total miles driven and your business miles driven, divide the business miles by the total miles driven. Then, multiply that percentage by your total expenses to determine your deduction.
For example, if you drove 5,000 business miles and 10,000 total miles, your business-use percentage would be 50%. If you spent $9,000 on car expenses over the year, you could deduct $4,500.
Pros of Using Actual Expenses
Using the actual expenses method can result in a larger deduction, especially if you
- drive an expensive car or
- don’t drive many business miles during the year.
Cons of Using Actual Expenses
There are some disadvantages to using the actual expenses method, including:
- The actual expenses method requires detailed and meticulous records of every car-related expense you have during the year.
- If you use the actual expenses method during the first year of your vehicle’s life, you cannot switch back and forth; you have to use the actual expenses method for the rest of the vehicle’s useful life.
Standard Mileage Rate vs. Actual Expenses – Which Should I Use?
Is one method better than the other? It really comes down to the type of vehicle you drive. If you drive a smaller car that uses less gas or a cheaper car, then using the SMR might be the way to go. If you have a larger or more expensive vehicle, then the actual expenses method might save you more money.
If you’re buying a new car soon, keep detailed records during the first year and calculate your deduction using both methods to see which one will be larger. Remember, that if you end up going with the SMR method the first year, you can switch next year.
**Talk to your accountant or a tax professional to determine the best course of action.**
Reimbursing Your Employees for Mileage
If your employees use their own vehicles for business trips and errands, you don’t have to reimburse them for mileage. Most employers, however, do reimburse their employees for business mileage.
If you choose to reimburse your employees for mileage, you don’t have to stick with the SMR. You can reimburse them any amount you like.
No matter what amount you choose, make sure that you have an accountable plan in place. If you don’t, your employees will have to include the reimbursement on their tax return as income.