Get clear on what counts as business mileage vs. commuting miles when you’re working out your tax deductions. It could save you money and problems with the IRS.
6 minutes
05.15.2023
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.
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.
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:
Generally speaking, though, driving from home to a principal place of business is considered a commute and, therefore, not tax-deductible,
It’s useful to be across the key differences between business miles 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:
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.
The IRS allows two basic methods to claim tax deductions for business car usage:
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.
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.
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:
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.
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.
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.
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.
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.
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.
It’s important to understand what counts as business mileage when claiming tax deductions. Commuting miles should not be included when you use the standard mileage method and doing so may incur an audit by the IRS.
If you’re considering your options for acquiring a new car for business use, a car subscription may be a preferred alternative to buying or leasing. An online car subscription is a convenient way to get the car you want, with a single monthly fee that covers registration, insurance and maintenance and avoids many of the hassles associated with owning a car.
A FINN car subscription is a flexible and convenient option that requires no down payment or long-term commitment. Choose your dream car and have it delivered directly to your doorstep.
It’s important to understand what counts as business mileage when claiming tax deductions. Commuting miles should not be included when you use the standard mileage method and doing so may incur an audit by the IRS.
If you’re considering your options for acquiring a new car for business use, a car subscription may be a preferred alternative to buying or leasing. An online car subscription is a convenient way to get the car you want, with a single monthly fee that covers registration, insurance and maintenance and avoids many of the hassles associated with owning a car.
A FINN car subscription is a flexible and convenient option that requires no down payment or long-term commitment. Choose your dream car and have it delivered directly to your doorstep.