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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.
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.
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.
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.
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.
| Pros | Cons |
|---|---|
| Simple to calculate and requires less recordkeeping. | May result in a smaller deduction if your actual expenses are higher. |
| Includes gas, maintenance, and depreciation in one rate. | Cannot be used if you’ve claimed depreciation or other vehicle-related deductions in prior years. |
| Works well for drivers with fuel-efficient vehicles. | Not allowed if you use more than five vehicles at the same time (fleet). |
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:
| Pros | Cons |
|---|---|
| Allows you to deduct specific costs like gas, insurance, and maintenance. | Requires more detailed recordkeeping. |
| Can result in a larger deduction if you have high vehicle expenses. | Must track both business and personal use to determine the percentage of expenses to deduct. |
| Includes depreciation, which can be beneficial for newer vehicles. | More complex to calculate and may require assistance from a tax professional. |
There are specific situations where the IRS does not allow you to use the standard mileage rate, including:
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.
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.
If you choose the actual expense method, you’ll need to keep receipts and invoices for all vehicle-related expenses. This includes:
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%.
Choosing the best method depends on your driving habits and expenses. Here’s a quick comparison to help you decide:
| Factor | Standard Mileage Rate | Actual Expense Method |
|---|---|---|
| Ease of Use | ✅ Simple to calculate and requires less recordkeeping. | ❌ Requires detailed tracking of all vehicle-related expenses. |
| Potential Deduction | May be lower if you have high actual expenses. | Can be higher if your vehicle expenses are significant. |
| Best For | Drivers with fuel-efficient vehicles or low operating costs. | Drivers with high vehicle costs (e.g., gas, maintenance, depreciation). |
| Recordkeeping Requirements | ✅ Minimal recordkeeping (mileage log). | ❌ Requires receipts and detailed expense logs. |
| Restrictions | Cannot be used if you’ve claimed depreciation or use five or more vehicles. | Available to all, but more complex to calculate. |
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.
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:
✅ Keep detailed records of your mileage and vehicle expenses to maximize your deductions.
✅ You can choose between the Standard Mileage Rate and Actual Expense Method, but not both.
✅ The Standard Mileage Rate is typically best for high-mileage drivers, while the Actual Expense Method works better for those with high vehicle costs.
✅ Mileage deductions are one of the most common areas the IRS audits — accurate tracking is essential to avoid issues.
✅ Everlance can help you track mileage and expenses automatically, making tax season easier.
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.
Everlance helps you track your miles and expenses automatically, so you never miss a deduction.
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Brad Thibeau is the Head of Growth & Partnerships at Everlance. Brad has worked at Everlance since 2021 with a focus on helping self employed people save time and money on their taxes.
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