Business Miles vs. Commuting Miles: Which Can You Deduct?

If you use your car for business, can you be sure that you’re optimizing your tax situation by writing off the maximum permitted amount? And if you need to calculate mileage, are you claiming the right amount under IRS regulations?

Business miles and commuting miles need to be separated because you’re not permitted to include your journeys to and from work as business mileage. To help avoid any tax issues with your business car purchase, lease or subscription, here’s what you need to know about business miles and commuting miles so that you get it right during tax season.

What are business miles? 

If you use the standard mileage rate outlined by the IRS to calculate the business-associated expenses of running your car, you’ll need to calculate your average business miles.

Business miles are defined as the distance traveled to get from one workplace to another. So, a traveling salesperson who needs to drive to see clients could include all the distances covered between appointments as business mileage. As well as visiting clients, business mileage may include running business-related errands (e.g., going to the bank or picking up supplies), driving to and from the airport for a business trip, traveling to a second job, etc. 

Business mileage should not be confused with travel expenses. Expenses incurred for plane tickets, bus or train fares or ride-sharing services are often separately reimbursed by employers and are not generally tax-deductible.

What are commuting miles? 

Commuting miles are the distances traveled by an individual to get from home to the workplace and back.

If our traveling salesman drives to the office before heading out on appointments, the distance between home and the office should not usually be claimed as business mileage under IRS regulations. Employers, however, may decide to compensate employees for a long commute so it may still be worth keeping track of this mileage.

There are some exceptions to the IRS rule. Your commuting miles may be tax-deductible if:

• You work a second job and go there directly from your first job without a break in between.
• You travel to a temporary workplace (separate from your standard workplace) directly from home.
• A home office is your principal place of business and you drive to and from there for business-related purposes (this is tax-deductible mileage).

Generally speaking, though, driving from home to a principal place of business is considered a commute and, therefore, not tax-deductible,

5 differences: business miles vs commuting miles

It’s useful to be across the key differences between business miles and commuting miles:

• Mileage type - Commuting miles are considered personal miles or necessary daily travel expenses by the IRS while business miles are incurred on behalf of the employer and are, therefore, treated differently.
• IRS reimbursements - IRS reimbursements are available for employees who drive to various work locations throughout the day or to and from a home office for business purposes — but not for commuting miles. 
• Time of day - Commuting miles are usually calculated before and after work while business miles are calculated while at work. A doctor who must visit patients, for instance, cannot include his/her travel to and from the clinic/office as business mileage but may include any mileage incurred while visiting patients during the day (or night).
• Calculations - Unless your employer reimburses you for commuting mileage, you’re unlikely to calculate it — and if you do, it’s probably only casually. Business mileage, on the other hand, affects tax if you choose the standard mileage method, so you’ll need to take care with the calculation.
• Number of stops - During your commute, you can stop as many times as you like. However, if you are calculating business mileage, you will need to limit the number of stops or detours you make. The IRS requires you to take the most direct route to the next workplace to reimburse you for this mileage.

How to track business and commuting miles

There are several different ways to track your business and commuting miles — including some smart use of technology. The main methods used are:

• Mileage log — Manually writing down the mileage according to the odometer in a log book.
• Tracking apps — These use your phone’s GPS to track the distance you drive (examples include MileIQ, TripLog and TrackMyDrive).
• Ride-share apps - Lyft and Uber can be used to track mileage if you ride-share.

Some useful tracker apps like Keeper also help you track other business expenses such as tolls, parking fees and car washes as well as your mileage.

How to calculate mileage 

The IRS allows two basic methods to claim tax deductions for business car usage:

1. Actual expenses - Where you itemize all car-related expenses and determine what it actually costs to operate the car for your business use. 
2. Standard mileage rate - Where you calculate the business mileage covered by your vehicle per year, which is multiplied by the IRS-approved rate.

Generally speaking, if you drive a lot of miles for work each year, it’s best to use the standard mileage method. To do so, you’ll need to use one of the mileage tracking methods above to work out how many business miles you drive per year.

Usually, you don’t need to track this for an entire year. Work out your mileage in an average month and decide what percentages are for business/private use. Each tax year, you’ll need to report the total business mileage of the vehicle for the year, so you should record the reading on the vehicle's odometer at the beginning and the end of the tax year.

Example:

Say you’re an independent contractor who drives a lot for work. You’ve calculated from a monthly mileage log book that two-thirds of your monthly mileage is for business use and one-third for private use (including your commutes).

The reading on the odometer of your vehicle was 20,000 miles at the beginning of the year and 44,000 a year later. The total annual mileage was 24,000 miles, of which 18,000 was business mileage and 6,000 was private mileage (including commutes).

You would report 18,000 business miles for the tax year. At the current rate set by the IRS (65.5 cents per mile), you could claim tax relief of $11,970. Note that this standard rate doesn’t just cover the costs of gas but also other car-related costs such as vehicle depreciation. 

How to maximize business mileage deductions 

If you use your car for business, maximizing your business mileage deductions in accordance with IRS regulations helps you protect the significant investment you’ve made in your vehicle. Here’s how to do it:

Maintain mileage records

Understanding your approximate annual business mileage is the most fundamental way to maximize your deductions. Use an app or maintain a logbook as described to track your business miles.

Choose the right deduction method 

Be sure to do your homework on the standard mileage vs actual expenses methods and choose the one that best suits the business usage of your car. 

Be clear on the rules if you work from home

Remember, if you’re self-employed or work from home, any work-related trips that you make from home will count as business miles and contribute towards your deduction. 

Be honest and retain evidence

Never try to over-maximize your business mileage deductions by bumping up the estimated percentage or “rounding it up”. All your claims must be supported by evidence so that if the IRS does come calling, you won’t suffer sleepless nights.

Update and review each year

Whichever method you use to track your mileage, don’t be tempted to use the same mileage from previous years or the IRS may raise a red flag. Nobody drives precisely the same mileage in consecutive years so review your actual business miles at least every 12 months.

Work with a tax professional 

Working with a tax professional will ensure that you optimize your tax position and don’t fall foul of the regulations. IRS audits are stressful and penalties can be severe. FINN doesn’t offer tax advice so it’s always best to consult with a tax professional about this.