Claiming a deduction for business mileage can be a good way to reduce how much you owe Uncle Sam, but the government has tightened up mileage deduction rules in recent years.
“They really limited the mileage tax deduction with the Tax Cuts and Jobs Act,” says Daniel Laginess, a certified public accountant and managing partner with Creative Financial Solutions in Southfield, Michigan.
The Tax Cuts and Jobs Act of 2017 eliminated itemized deductions for unreimbursed business expenses like mileage. The tax reform law also significantly narrowed the mileage tax deduction for moving expenses. That can now only be claimed by active-duty military members who are relocating because of new orders. Still, a mileage deduction exists for certain situations.
Under the new tax code, you can claim a mileage deduction for:
- Business mileage for the self-employed.
- Mileage related to medical appointments.
- Mileage incurred while volunteering for a nonprofit.
You need to know the rules for claiming mileage on your taxes and, more importantly, you need to keep careful records. Here’s a breakdown of everything you need to know about mileage deductions.
Self-Employed Workers Hit the Mileage Jackpot
When it comes to mileage tax deductions, the self-employed mileage deduction is the largest one available. For 2020 tax filings, the self-employed can claim a 57.5 cent deduction per business mile driven. Those miles could be racked up from meetings with clients, travel to secondary work sites or errands to pick up supplies.
Mileage for self-employed workers isn’t subject to any threshold requirements either. In other words, all miles are deductible regardless of how much a person drives for work. If a person drives for both business and personal purposes, only miles driven for business can be deducted. Business miles are considered those driven from a person’s principal place of business, according to Michael Corrente, managing director in the Boston office of financial firm CBIZ MHM.
“A lot of people think they can take it from their home,” Corrente says. Driving from home to a principal place of business is considered a commute, even for those who are self-employed or small business owners. Only those who have a home office as their principal place of business can deduct mileage when driving to and from home for business-related purposes.
Self-employed workers can claim their mileage deduction on their Schedule C tax form, rather than a Schedule A form for itemized deductions. Alternately, they can claim their actual vehicle expenses for maintenance, repairs and fuel. Taxpayers may want to calculate which option will result in the higher deduction.
“If you use your car exclusively for business, (expenses) are 100% deductible,” says Danielle Voloshin, certified financial planner and wealth advisor with Los Angeles-based Miracle Mile Advisors. Workers who use a vehicle for personal travel as well can only deduct a prorated percentage of expenses based on business use.
Itemize Your Deductions to Claim Medical and Charitable Mileage
Self-employed people aren’t the only ones who can take advantage of mileage tax deductions, but everyone else will need to file a Schedule A and itemize their deductions if they want to get in on the tax savings. Those who do itemize may be able to deduct mileage for either medical care or charity work.
Mileage accrued when driving to and from doctor visits, the pharmacy and the hospital can all count toward a medical deduction. You can claim 17 cents per mile driven in 2020, but there’s a catch. Only medical expenses – both mileage and other bills combined – in excess of 7.5% of your adjusted gross income can be deducted.
People commonly forget about this deduction, Voloshin says. While it can be difficult to exceed the income threshold, if you had significant medical bills last year, it can be worthwhile to add up your annual mileage for doctor visits to boost your deduction amount.
If you drive to volunteer at your favorite nonprofit, that mileage is deductible as part of your charitable donations. The IRS allows volunteers to claim 14 cents per mile, but you have to be volunteering yourself. You can’t, for example, be driving a child to a volunteer activity. There is no threshold requirement for claiming these miles.
The IRS Will Want to See Your Records
While deducting mileage can save tax dollars, think twice before claiming travel time you can’t document. If you’re audited, the IRS will want to see a log that includes dates, destinations and the reason for travel.
“Record-keeping is a must for anyone who wants to claim a mileage deduction,” Corrente says.
To avoid losing the deduction during an audit, travel logs should be detailed. Estimating a percentage of your total mileage for business purposes won’t cut it, Laginess explains. Instead, make sure you are recording exact mileage amounts.
Tracking every drive can be a tedious process when done with a pen and paper, but technology is making it easier. MileIQ, TripLog and Everlance are a few of the apps available that automatically detect travel and log every trip. Users can then categorize their drives by purpose and run reports to document deductions. Other apps, such as ItsDeductible and QuickBooks, have features to track mileage, but these may require users to manually input trip information.
There’s nothing stopping those who didn’t track their travel in 2020 from claiming a mileage tax deduction when filing their return this spring. However, you should have evidence of when you traveled and why, and there is no guarantee the IRS will accept documentation compiled after the fact. It’s better to keep a log right from the start rather than risk a deduction being disallowed during an audit.
Claiming mileage on taxes can add up to a hefty deduction for many people, but the IRS has specific rules regarding when and how it can be claimed. If you are uncertain about the eligibility requirements for mileage to be tax-deductible, consult with a tax professional who can evaluate your situation.