Self-Employed Mileage Deduction: All You Need to Know

Editorial team of TFX

• 28.12.21 • 5 min read

As a self-employed taxpayer, expenses incurred when conducting business can be used as a tax deduction. This means you can write off expenses for mileage you took while doing business, but then how to write off mileage on taxes is what you are wondering about.

If you use a car for business only, you can write off all of the costs involved in running the car. If you are using your automobile for personal and business trips, you can only subtract your business travel expense.  We will explain how to keep a record of your business travel expenses and write off mileage on taxes.  Providing a high-level understanding regarding how to deduct mileage on taxes is all TFX is here to assist you with.

TCJA and Self-employed Mileage Deduction

The Tax Cuts and Jobs Act of 2017 eliminated the ability of employees to receive a reduction on tax for mileage as well as other expenditures that were not repaid by their employer. The mileage reduction standards were changed so that most employees could not claim deductions on taxes.

However, under the new tax code, you can write off the mileage you drive for work. Here is a list of those who can claim mileage on their taxes:

• Owners of small businesses. Self-employed individuals that file Schedule C and Schedule F.
• Other individuals who are self-employed, including independent contractors, for instance, drivers for rideshare providers, have been included under this category.
• Employees who fall within specific categories. In particular, qualifying performers, service members in the military services, and fee-based public workers are allowed to receive mileage reimbursements on their travel expenses.
• Individuals who are traveling to perform volunteer work or to attend medical appointments.

How to Track and Keep Records of Your Mileage

Accurate records are defined by the Internal Revenue Service (IRS). It is worth taking into account that tracking and keeping record of your mileage will prove helpful when you claim self-employed mileage deductions. Hence, the IRS requires that you keep track of the following:

• Mileage of business trips
• The year's complete miles
• The date, time, or location (where you intend to go) are all equally important.

A further requirement is that the documentation is "timely," which means that it should be kept on file as soon as the spending occurs.  All that is required is an entry in a diary or logbook for each week of the year and fits the defined accurate records category.

In addition, you must demonstrate the car's percentage which is used for business purposes only. Logging all trips and afterward determining how much time was spent on business travel is indeed the best way to do this.

In today's digital environment, you may also find using mileage monitoring applications helpful in keeping a good record for claiming self-employed mileage deduction.

What Is the Current IRS Mileage Rate for Self-Employed?

Self-employed people will be able to deduct 56 cents each business mile starting on January 1st, 2021. IRS also regulates medical, relocating, and charity mileage compensation rates.

Depending on your way of using your vehicle, you may be eligible for a tax deduction. It is possible to deduct the expense of driving your business vehicle if you are working as a contractor or are self-employed. Commuting to and from work is not taxable mileage in most cases.

Claiming Mileage on Your Taxes

When it comes to “what mileage can I deduct as self-employed?” Your situation dictates how many miles you can deduct from your taxes. Consequently, claiming mileage for humanitarian or medical purposes is handled differently from the business. When calculating your mileage deduction, there are several factors to consider and the forms you will use will be different.

What Mileage Can I Deduct as Self-employed?

Not everyone knows what should be added in their business miles, so don't worry. "Can I deduct miles for travels related to work or what mileage can I deduct as a self-employed individual?" are just frequently asked questions. When it comes to tracking their business travel expenses, independent contractors use the Schedule C form. Additionally, you'll need to answer a few questions concerning the vehicle, such as when it was first put into operation for business purposes.

The cost of driving from your house towards your primary business, for example, a store or office, is indeed not tax-free when it comes to business owners. Trips made from that point toward other company sites, for example, clients' offices, are tax-free, just like trips made from the final destination back toward the primary location.

Now you might ask, “As a Lyft or Uber driver, how to deduct mileage on taxes?” As a Lyft or Uber driver, this implies that the distance traveled to pick up your first customer and also the distance traveled back to your house since the last passenger dropped off are not tax-deductible. You can deduct mileage only for journeys made between your first work stop and any future stops.

For those who work from home, excursions towards other worksites are refundable if the home office is your primary location. The same laws apply to employees.  Traveling from the house toward your first destination is not eligible for a tax deduction.

Mileage Expenses for Other Employers

Those who fall into the categories above can claim mileage on their individual tax returns in 2020 at the rate of $0.575 per mile. Form 2106 asks for mileage information as well as information on the vehicle.

Employers and self-employed workers alike must adhere to the same rules. There are no self-employed mileage deductions for expenses incurred when driving from home to your first destination.

Medicare and Social Security

Self-employment tax seems to be identical with Federal Insurance Contributions Act (FICA) payment provided by an employer since it includes Medicare taxes and Social Security taxes. As long as it is used just to calculate income tax, the reduction of half tax is permitted. It does not affect net self-employment income or self-employment tax.

Whether self-employed or employed, you must pay the very first 7.65 percent of income tax. Your employer is not going to be able to include that amount in your compensation. Therefore, you are indirectly paying them a piece of it.

The technique of accounting used by self-employed individuals determines their net income as well as deductions from self-employment. Cash accounting is used by the majority of self-employed persons. Thus, they consider all revenue and deductions that have been received or incurred during the time in estimating their net income via self-employment.

Are you wondering how to write off mileage on taxes if you have been using your vehicle for medical or charitable services? If you are claiming medical or charitable mileage, then you must itemize your deductions. Mileage tax deductions are not only for the self-employed. Anyone who wants to benefit from the tax reductions must submit a Schedule A to itemize their deductions. Deducting medical care mileage and charitable service may be possible if you itemize.

Medical deductions can be taken for mileage related to medical visits, the drugstore, and the hospitals. If you've experienced a wide range of medical expenses in the last year, it may be worthwhile to tally up the miles you drove to and from the doctor's appointments to get more significant self-employed mileage deductions.

You can deduct the cost of your gas when you donate your time to a charity by driving yourself. Volunteers can deduct 14 cents per mile from their federal income taxes, but only if they are actually donating their time. It's not permitted, for instance, to drive a child to some charity event.

Medical Mileage Deductions and IRS

Taking someone to the doctor's office is a good use of your car.  Unreimbursed out-of-pocket expenditures such as gas or oil might be deducted instead of mileage. As long as your car is used for medical purposes, you can claim medical costs.

You may be eligible to deduct more than just the cost of driving for medical reasons. IRS Publication 502 provides all of the necessary information. Unreimbursed medical expenses surpassing 7.5 percent of your earnings could be deducted in most cases.

For relocation, medical, and charitable purposes, you must itemize your expenses on the tax filing so that you can claim travel tax reduction. Tax returns will take longer to prepare if you itemize since you'll need to complete all necessary forms.

Conclusion

Knowing about the regulations governing self-employed mileage deductions is crucial. If you know it and learn how to calculate your deductible mileage and expenditures, you can claim the tax deduction. Whether employed or self-employed, you can claim mileage tax deduction provided you know to do it.