Claiming a deduction for business mileage can be a good way to reduce how much you owe Uncle Sam, but the government is tightening up the rules for tax-deductible miles.
“It used to be an employee could deduct their mileage, but that is no longer (allowed),” says Bob Charron, a CPA and partner-in-charge of tax department for accounting firm Friedman LLP in New York City. The Tax Cuts and Jobs Act of 2017 eliminated itemized deductions for unreimbursed business expenses like mileage. The tax reform law also significantly narrowed the mileage tax deduction for moving expenses. That can now only be claimed by active-duty military members who are relocating because of new orders. Still, a mileage deduction still exists for certain situations.
Under the new tax code, you can claim a mileage deduction for:
— Business mileage for the self-employed.
— Mileage related to medical appointments.
— Mileage incurred while volunteering for a nonprofit.
You need to know the rules for claiming mileage on your taxes and, more importantly, you need to keep careful records. Here’s a breakdown of everything you need to know about mileage deductions.
Self-Employed Workers Hit the Mileage Jackpot
When it comes to mileage tax deductions, self-employed people have access to the highest deduction rate and fewest restrictions. For 2018 tax filing, the self-employed can claim a 54.5 cent deduction per business mile. Those miles could be racked up from meetings with clients, travel to secondary work sites or errands to pick up supplies. Mileage for self-employed workers isn’t subject to any threshold requirements either. In other words, all miles are deductible regardless of how much a person drives for work. If a person drives for both business and personal purposes, only miles driven for business can be deducted.
Self-employed workers can claim their mileage deduction on their Schedule C tax form, rather than a Schedule A form for itemized deductions. Alternately, they can claim their actual vehicle expenses for maintenance, repairs and fuel. Taxpayers may want to calculate which option will result in the higher deduction. “If someone has a lot of miles, they will probably be better off at the 54.5 cents (mileage deduction rate),” Charron says.
Other expenses can be deducted as well. “You can claim some things in addition to the mileage rates, like tolls and parking,” says Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting, a provider of software and information services for tax, accounting and audit workers.
Itemize Your Deductions to Claim Medical and Charitable Mileage
Self-employed people aren’t the only ones who can take advantage of mileage tax deductions, but everyone else will need to file a Schedule A and itemize their deductions if they want to get in on the tax savings. Those who do itemize may be able to deduct mileage for either medical care or charity work.
Mileage accrued when driving to and from doctor visits, the pharmacy and hospital can all count toward a medical deduction. You can claim 20 cents per mile driven in 2018, but there’s a catch. Only medical expenses — both mileage and other bills combined — in excess of 7.5 percent of your adjusted gross income can be deducted. In 2019, this threshold will increase to 10 percent of the adjusted gross income.
If you drive to volunteer at your favorite nonprofit, that mileage is deductible as part of your charitable donations. “You can’t deduct your time, but you can deduct the mileage,” says Yvonne Marsh, a certified financial planner and CPA with advisory firm Marsh Wealth Management in Knoxville, Tennessee.
The IRS allows volunteers to claim 14 cents per mile, but you have to be volunteering yourself. You can’t, for example, be driving a child to a volunteer activity. There is no threshold requirement for claiming these miles.
The IRS Will Want to See Your Records
While deducting mileage can save tax dollars, think twice before claiming travel time you can’t document. If you’re audited, the IRS will want to see a log that includes dates, destinations and the reason for travel. “Truly, a log is supposed to record the starting and ending odometer mileage,” Marsh says.
Tracking every drive can be a tedious process when done with a pen and paper, but technology is making it easier. Smartphone apps such as MileIQ, TripLog and TrackMyDrive automatically detect travel and log every trip. Users can then categorize their drives by purpose and run reports to document deductions. Other apps, such as ItsDeductible and QuickBooks, have features to track mileage, but these may require users to manually input trip information.
Those who didn’t track their travel in 2018 may still be able to take mileage deductions when filing taxes this spring. However, to do that, you should have evidence of when you traveled and why. “Even if you don’t keep a good log, the court has said you can create a reasonable reconstruction,” Luscombe says. Still, it’s better to keep a log right from the start rather than risk a deduction being disallowed during an audit.
Claiming mileage on taxes can add up to a hefty deduction for many people, but the IRS has specific rules regarding when and how it can be claimed. If you are uncertain about the eligibility requirements for mileage to be tax deductible, consult with a tax professional who can evaluate your situation.
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Everything You Need to Know About Claiming a Mileage Tax Deduction originally appeared on usnews.com
Update 03/01/19: This story was previously published on Jan. 14, 2016, and has been updated with new information.