Claiming mileage on taxes? Beware of the high mileage deduction
by Tristan Zier · in 1099 Taxes · on April 17, 2015
As an independent contractor, claiming mileage on taxes will likely be one of your largest expense deductions – so it’s important that you take full advantage of it.
However, some people take advantage of it too much, which means it’s also one of the areas the IRS audits most frequently. What mileage can you write off, and how should you do it?
How do I write off car expenses?
Check out this post on how to write off car expenses. There are two methods: the Standard Mileage Rate and Actual Costs Method. In both cases, you’ll have to track your business mileage. Most people use the Standard Mileage Rate because it’s easier and results in a larger write-off.
What mileage can I claim on taxes?
So what mileage can you include as business mileage? IRS Publication 463 goes into more detail on transportation expenses. In general, you can include mileage as a business expense if you’re driving between workplaces within your tax home, when visiting customers, when attending business meetings out of town, or going to a temporary workplace. You can’t write off your normal commute though. This chart from the IRS is a good summary:
Here are a few of the most common examples:
#1: You have a home office
If you have a home office (and have concluded you can deduct home office expenses ), then that is your regular place of work. Any business related driving outside of that (e.g. to a client meeting) can be written off.
#2 You have no regular place of work
Say that you don’t qualify for a home office deduction, but also don’t have a place where you normally work. In this case, the IRS calls your “metropolitan area” your regular place of work. This is defined as “the area within the city limits and the suburbs that are considered part of that metropolitan area.” You can write off any mileage that takes you out of that area. However, you cannot write off any mileage that takes you to temporary work locations within that metropolitan area.
#3 You only
work at temporary work locations
If you work at multiple work locations away from home, you can deduct the mileage to those locations. A temporary work location is one you expect to last (and actually does last) less than one year.
#4 You have two regular places of work
If you work at two jobs in two locations, you can write off the mileage between those two locations. You cannot write off the mileage from home to the first location, or from the second location back home.
Can I write off mileage if I carpool?
If you carpool for non-business purposes, you can’t write off mileage. If anyone chips in for the gas, don’t include that as income. However, if your carpool is for business purposes, you have to include any payments from passengers in your income. In this case, you can write off the associated car expenses.
So should you just claim that your business carpool is non-business? You can try, but the IRS might disagree if they ever audit you, which means you’d be on the hook for back taxes and penalties.
A side note: there are some clever ways you can easily turn your commute into a business carpool. A great way is with Lyft’s Driver Destination. if it’s available in your area. If you’re going to be commuting, why not turn it into a business opportunity?
Why should I be careful about writing off too much mileage?
As you can tell above, the rules on what constitutes business mileage are complex. That generally results in people writing off too much mileage, meaning less taxes paid to the government.
The IRS doesn’t give much insight into what triggers an audit. Sometimes it’s random. Sometimes it’s because your tax forms don’t match your 1099 or W-2. However, they do tend to audit areas that are more regularly abused or done incorrectly, so you may be at higher risk if you’re writing off car expenses.
This doesn’t mean you won’t be fine in an audit, or writing off car expenses at all is wrong – it just means be careful and don’t abuse it!
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