Business vs Commuting Miles for Taxes: What’s the Difference?

When not hanging out with his high profile friends like Gandhi or Batman, Robby enjoys outgo clock time with his wife and children. He can sneeze with his eyes open, has won two life accomplishment awards, and has visited every state ; three of which have n’t been discovered however. He is besides a Certified Public Accountant and assists clients with a wide variety of account and tax issues. There ‘s merely one thing to keep in mind : not every nautical mile you drive is tax-deductible. clientele miles count, while commuting miles do n’t. Let ‘s get into the difference between the two. That ‘s veracious — when you ‘re driving and blaring music out of your stereo ( or listening to the latest true crime podcast ), you ‘re doing something that can bring your tax poster way down. If you ‘re a freelance or independent contractor who sometimes drives for work, the miles you log can help you save a lot on your taxes.

What are business miles?

The IRS lets freelance people claim car-related tax write-offs based on the commercial enterprise miles they drive every class.
What counts as a occupation mile ? The definition is more expansive than most people realize. It does n’t just cover rideshare and delivery drivers carrying passengers or takeout, for case. In bare terms, any clock time you drive from one place of work to another, that ‘s a business mile.
You can be traveling between worksites and confluence locations, of course. But it besides counts if you head out for a business lunch, make a run to the stake agency or the bank, or head to Staples for supplies .

What are commuting miles?

Unlike business miles, what the IRS considers “ commuting miles ” are n’t tax-deductible.
If a business nautical mile takes you from one workplace to another, a commuting mile takes you between your base and a workplace. Driving between your house and an office build, for case, would be considered commutation .

How commuting miles work with a home office

immediately you ‘re probably thinking, “ What if my position of work is a home plate function ? ”
If we followed the IRS rules in this case, then your change from the layer to the laptop would be your first trip to work. And then, your first gear trip of the sidereal day — to McDonald ‘s for the 20-nugget jazz band — would count as a business trip, right ?
incorrect — even if Ronald McDonald himself is one of your clients. If you ‘re a home-based independent contractor, then applying the rules as they are to you would be unfair to people who work out of separate business offices. After all, they do n’t get a mileage reimbursement when they leave home.
That ‘s why, if your chief stead of work is your home agency, your first and last trips of the day count as commuting mileage. then if you want to get some business mileage out of a trip from home, go to a impermanent work location first — like a node meet site. then you can go grab some nuggets with Szechuan sauce .

How business vs. commuting miles work

Let ‘s use an easy model to get a base understand of how these two types of mileage exploit. Say that you have your own small business agency two miles away from your home. You drive to and from this agency every day. then, once a week, you leave this office and drive five miles away to meet with a node.
On the sidereal day you have your node merging, you ‘ll have driven fourteen total miles : two miles to the office, five miles to meet your customer, five miles back to the office, and then two miles family. According to the IRS mileage rules, your drive to the position and back home from your office are commuting miles, so they ‘re not tax-deductible.
now, what about your customer confluence ? Those miles would be considered a business stumble, and would be tax-deductible. Since you had to leave your chief business location to meet with your client, those miles qualify as business miles.

The two ways to deduct business mileage

once you ‘ve figured out how many commercial enterprise miles you ‘re driving, the IRS gives you two ways to expense the business use of your vehicle. You can deduct a standard mileage rate, or write off your actual vehicle expenses .

The standard mileage rate

This method tends to work well for freelancer contractors who rack up a lot of occupation miles in a tax year, like Uber and Lyft drivers and DoorDashers.
Each class, the IRS lets you write off a standard amount for each business mile you drive. In 2021, the standard mileage allowance was $ 0.56 per mile. so, if you end up driving 30,000 miles for work, you ‘ll be able to write off $ 16,800 at the conclusion of the year.
This criterion pace includes car-related costs you ‘d differently be able to write off individually, like gas and fomite depreciation. however, there are some drive expenses you can write off on crown of the standard mileage rate, including :

  • 🅿️ Parking fees
  • 🛂 Tolls
  • 🧽 Car washes
  • 📋 DMV fees

That means you wo n’t be entirely off the hook when it comes to tracking expenses. An app like Keeper Tax can help : it ‘ll scan all your purchases for those purchases, so you wo n’t have to manually keep cut of your write-offs. { upsell_block }
The IRS has some extra restrictions on using the standard mileage rate :

  • You can’t operate five or more cars at the same time (a fleet operation)
  • If you want to use it for a car, you have to choose the method in the first year you use your car for work. (In future years, you can switch to the actual expense method if you like)
  • If you lease the car, you’ll have to keep using the standard mileage method for the entire period of the lease, including any renewals

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The actual expenses method

This method acting tends to result in a bigger tax break dance for freelancers who do a light or chasten amount of driving for cultivate. ( Take a look here at the mathematics comparing it to the standard mileage method acting ! )
If you use the actual expenses method, you keep track of what you actually spend on your car for the year, then multiply that entire spend by the share of driving you did for sour. ( If you use your car 60 % of the prison term for solve errands and 40 % of the time for personal trips, for model, you ‘d multiply your sum car expenses by 60 %. ) { email_capture } ‍
Under the actual expenses method, you can claim any expenses you incur on your cable car. Gas, oil, insurance, and care — each of these is a qualify business expense. With this method, you besides can take a deduction for vehicle disparagement if you own your car. If you lease, then you ‘ll be able to deduct rent payments.
The actual expenses method acting is heavier on the recordkeeping side than taking the standard mileage rate — even if it can lead to bigger tax savings for most freelancers. To streamline your recordkeeping, use Keeper Tax. The app mechanically scans your purchases for car-related expenses, at natural gas stations, car rectify shops, and more. That manner, it ‘s easier to save on taxes with the actual expense method.

How to track your miles

If you drive a set and decide that the standard mileage method acting is best for you, you ‘ll have to track how many business miles you drive every year.
This is most normally done with a mileage tracking app, or by keeping a mileage log and consulting your car ‘s odometer. ( If you ‘re a rideshare driver, Lyft and Uber will track some of your miles for you. )
Combine this with Keeper Tax to track any other deductible expenses, tolls, parking fees, and car washes. then you ‘ll be prepared to take the biggest possible tax deduction on your business miles.

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Category : Finance

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