How to Deduct Vehicle Expenses on Your 2024 Taxes: Standard Mileage vs Actual Expenses

Tracking vehicle expenses can be one of the most valuable tax deductions for independent workers. Whether you’re a freelancer, small business owner, or gig worker, deducting the miles you drive for work can significantly lower your taxable income. However, the rules for claiming these deductions can be confusing, and mistakes could increase your chances of being audited.

This time of year is subject to some....interesting....information that goes out there on various forms. We saw a stat that over 1/3rd of people are getting financial advice from social media. While that can be a powerful thing, it can also be a dangerous game of telephone where the prize is a costly failed tax audit. So, since we know a thing or two about tracking mileage and deducting your vehicle on your 1099 taxes, we had to step in with a couple helpful tips and reminders.

Deducting your car or truck

Driving your personal vehicle for business purposes can result in substantial tax savings. The IRS allows you to deduct expenses related to business travel, but only if you follow the rules carefully. These deductions cover costs like gas, maintenance, and even depreciation, but you need to know which method to use and how to document your mileage.

What Vehicle Expenses Are Deductible?

The IRS allows you to deduct several types of vehicle-related expenses if they are used for business purposes. These expenses can help reduce your taxable income and maximize your savings. Below is a list of deductible vehicle expenses

It’s important to note that commuting from your home to your regular place of work is not deductible. However, trips from one work location to another, or to a temporary job site, are eligible.

Two Methods to Deduct Vehicle Expenses

There are two ways to calculate your vehicle deduction: the standard mileage rate and the actual expense method. Both methods have pros and cons, so it’s essential to understand which one makes the most sense for your situation.

Standard Mileage Rate

The standard mileage rate is the most straightforward way to calculate your deduction. For 2024, the IRS set the business mileage rate at 67 cents per mile, which covers all operating costs, including gas, maintenance, and depreciation.

Actual Expense Method

The actual expense method requires more detailed recordkeeping but can result in a larger deduction if you have high vehicle-related expenses. With this method, you’ll track each individual expense, including:

• Gas & Oil
• Depreciation
• Lease Payments
• Maintenance
• Repairs
• Insurance

When can you not use the standard mileage rate?

There are specific situations where the IRS does not allow you to use the standard mileage rate, including:

• If you operate five or more cars at the same time, like a fleet.
• If you've claimed a depreciation deduction in the past for any method, other than straight-line
• If you have claimed a Section 179 deduction on the car.
• If you have claimed actual expenses on a car you lease.

Keeping accurate records

No matter which method you choose, the IRS requires you to keep accurate records to substantiate your vehicle deductions. Failing to keep detailed documentation is a common mistake that could trigger an audit.

Standard mileage rate

To claim the standard mileage rate, you’ll need to keep a daily mileage log that includes date, purpose, miles driven, starting location, and end location.

This can be done by hand for each trip, or with a GPS-based app like..erhhmm clears throat Everlance.

Actual Expenses Recordkeeping

If you choose the actual expense method, you’ll need to keep receipts and invoices for all vehicle-related expenses. This includes:

• Gas & oil receipts
• Maintenance invoices
• Repair invoices
• Insurance statements
• Registration fees
• Lease or loan agreements
  

It’s also essential to track your business use percentage. For example, if you drive 15,000 miles in a year and 10,000 of those miles are for business, your business use percentage is 67%.

Which method is best?

Choosing the best method depends on your driving habits and expenses. Here’s a quick comparison to help you decide:

In most cases, the standard mileage rate is the easiest option and works well for gig workers and delivery drivers. This is especially true if you operate an electric vehicle, which is a nice tax loophole that we covered late last year. However, if you have significant vehicle-related expenses, the actual expense method could result in a larger deduction.

Common mistakes that can trigger an audit

The IRS pays close attention to vehicle deductions, as they’re often a source of errors. Here are some common mistakes that could trigger an audit:

• Failing to keep a mileage log: The IRS requires detailed mileage records. Without them, your deduction could be denied.
• Claiming commuting miles: Remember, trips from home to your regular workplace are not deductible.
• Mixing personal & business expenses: Be sure to separate personal and business vehicle use and only deduction your business portion.
• Claiming both mileage & actual expenses: It has to be one or the other, you cannot deduct your mileage and also your expenses like gas or repairs.

Maximizing your vehicle deduction requires accurate tracking and smart planning. Whether you choose the standard mileage rate or the actual expense method, keeping detailed records is key to staying compliant and avoiding audits.