If you do any sort of driving for work, you might be eligible to claim mileage on your taxes.
It’s essential to understand what types of driving the Internal Revenue Service (IRS) allows employees and the self-employed to deduct on their tax returns. We’ve compiled the mileage deduction guide below to help you make sure you’re writing off mileage in accordance with the latest IRS rules.
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Track Your Business Mileage
To claim mileage deductions on your next tax return, you must first keep accurate records of your mileage. For decades, people have been tracking their business mileage with pen and paper.
But luckily for you and tax professionals everywhere, technology has advanced, and now there are mileage tracking apps to make recording business mileage easier than ever. Mileage Tracking is available within the FreshBooks iOS app or FreshBooks Android app. You can also use a stand-alone mileage tracking app like Everlance, which automatically and reliably tracks business mileage, then compiles all your mileage tax deduction data into IRS-compliant reports.
If you’re a business owner, it’s also a good idea to put specific requirements in place for your employees’ mileage logs. You can download a free Excel mileage log template to distribute to your staff so they’re aware of what’s expected from their reports if they track mileage manually.
IRS Standard Mileage Rate
The IRS Standard Mileage rate is the standard mileage reimbursement rate set by the IRS each year so that employees, contractors, and employers can use it for tax purposes. This rate fluctuates yearly and applies to vehicles, including cars, trucks, and vans.
For the 2021 tax year, the rates are:
- 65.5 cents per mile for business miles driven (up 3 cents from the last half of 2022)
- 22 cents per mile driven for medical or moving purposes (same as 2022)
- 14 cents per mile driven in service to a charitable organization (currently fixed by Congress)
Most businesses use the standard mileage deduction as the foundation for their employee reimbursement policies. Other companies implement a higher or lower number than the standard mileage rate to reimburse their employees.
For instance, if a business operates in an area with higher fuel costs, it may use a higher reimbursement rate than the IRS standard mileage rate.
If a company does not have an employee reimbursement program in place, employees cannot deduct their business mileage expenses on their tax return.
The Tax Cuts and Jobs Act (TCJA) of 2017 eliminated the deduction for unreimbursed employee expenses. For now, only self-employed people and business owners can deduct business miles.
How to Claim Mileage on Taxes
Before the TCJA, employees who weren’t reimbursed for business-related mileage could deduct those miles on their personal tax returns. Now that the option to deduct unreimbursed employee business expenses is gone—at least through the 2025 tax year—many businesses reimburse workers for using their own vehicles to meet with clients, run business errands, attend professional events, and more. Although this may seem like a given, employees can’t deduct their commute, as wonderful as that would be.
These mileage reimbursements are tax-deductible for the business and may not be taxable for the employee, depending on how you structure your reimbursement program.
Two common ways to reimburse employees for the use of their personal vehicle are:
- Flat car allowance. With a flat car allowance, you set a fixed amount, such as $500 per month, and pay it to all employees who use their vehicle on the job. This method is easy because you don’t have to calculate payments each month. However, the allowance is taxable income for the employee and is subject to FICA taxes.
- Mileage reimbursement. If you pay a mileage reimbursement, you set a cents-per-business mile rate (the IRS’s standard mileage rate or another rate of your choosing) and pay employees that rate multiplied by their actual business mileage each month. That mileage reimbursement is not taxable income for the employee as long as 1) the mileage rate isn’t higher than the IRS standard mileage rate, and 2) you keep records of employee mileage.
For more information on helping your employees with their business transportation expenses, make sure to talk to your finance or tax professional.
For self-employed workers and independent contractors, the mileage tax deduction rules state that your deductible miles depend on where your primary place of business is located. If you work from your home, all your miles are typically deductible any time you get in your car and drive for any purpose related to your business.
According to the IRS, if you drive to meet with a client, then return directly home, the entire trip is business-related and therefore counts towards your mileage deduction. You may also deduct mileage driving from your business location to work-related activities, even if it’s just dropping packages off at the post office.
If you operate your business from somewhere other than your home office, you can’t deduct mileage from your drive to that location because that’s considered commuting.
Claiming Mileage: Business Trips vs. Personal Trips
It goes without saying that only mileage used for business purposes may be claimed on your tax form, not mileage used for personal purposes. Commuting to and from your office is considered a personal trip, and so is that cup of coffee you stopped for on the way, even though many of us may need a daily dose of caffeine to do our jobs.
These mileage tax deduction rules can make things complicated when it comes to mileage tracking, as many of us run personal errands, like picking up our dry cleaning or making a stop at the grocery store. At the same time, we may be driving for business purposes.
Mileage tracking apps offer self-employed workers and small business owners an easy solution for distinguishing between business and personal driving trips, even if blended into the same drive.
Typically, these apps recognize when you are driving and automatically track your mileage. Then you can categorize any trips the app tracked for you as either business or personal.
Mileage Deduction Made Easy
When it comes time to prepare your taxes, just download your FreshBooks mileage and expense tracking reports and send them to your accountant or tax professional. This saves you tons of time, money, and hassle when it comes to tracking business mileage and deductible expenses for your tax return.
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This post was updated in November 2023.