Claiming a deduction for mileage can be a good way to reduce how much you owe Uncle Sam, but the government has tightened up mileage deduction rules in recent years.
The Tax Cuts and Jobs Act of 2017 eliminated itemized deductions for a number of miscellaneous expenses. “Prior to that, employees were able to claim mileage and unreimbursed expenses on their taxes,” says Durriya Pierce, a certified financial planner and financial advice expert for banking app Albert.
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 exists for the following situations.
— 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, the self-employed mileage deduction is the largest one available. “This is one of those (deductions) you don’t want to leave lying on the table,” says Wendy Newcomer, CPA and partner with firm CGN CPA in Indiana, Pennsylvania.
For 2021 tax filings, the self-employed can claim a 56-cent deduction per business mile driven. 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. However, business miles are considered only those driven from a person’s principal place of business.
“When it comes to your commuting expenses, that mileage is not deductible,” Pierce explains. Driving from home to a principal place of business is considered a commute, even for those who are self-employed or small business owners. Only those who have a home office as their principal place of business can deduct mileage when driving to and from home for business-related purposes.
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. Workers who use a vehicle for personal travel as well can only deduct a prorated percentage of expenses based on business use.
Taxpayers may want to calculate which option will result in the higher deduction. “The mileage is most of the time the best way to go,” Newcomer says.
“It’s best to figure out which one you want to use and stick to it,” Pierce says. Switching from mileage to actual costs could be difficult since calculations for depreciation may need to be factored in. On its website, the IRS also states that taxpayers who want to use standard mileage for their deduction must do so in the first year the vehicle is available for business use.
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 medical care and charity work.
But be aware that these deductions are not nearly as lucrative as those for self-employed workers. “It sounds like it’s awesome, (but) for the majority of people, it won’t help them,” says Shelli Woodward, an enrolled agent and tax analyst for website MerchantMaverick.com.
That’s because the reimbursement rates for medical and charitable mileage are considerably lower than that provided for business travel. What’s more, there are thresholds and other limits on these deductions.
Mileage accrued when driving to and from doctor visits, the pharmacy and the hospital can all count toward a medical deduction. You can claim 16 cents per mile driven in 2021, but there’s a catch. Only medical expenses — both mileage and other bills combined — in excess of 7.5% of your adjusted gross income can be deducted.
“It’s really hard to get that deduction,” Newcomer says. While it can be difficult to exceed the income threshold, if you had significant medical bills last year, it can be worthwhile to add up your annual mileage for doctor visits to boost your deduction amount.
If you drive to volunteer at your favorite nonprofit, that mileage is deductible as part of your charitable donations. 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. What’s more, these travel logs should record exact mileage amounts.
“That’s supposed to be contemporaneous,” Newcomer says. In other words, taxpayers are supposed to be updating that log throughout the year as they drive. “One of the easiest ways to do it is to keep an old-style calendar in your car,” Newcomer suggests. It’s an old-school method but can be a convenient way to jot down your mileage and other details while still in the car.
A more modern method may be to use your phone. “There are some awesome apps out there so you don’t have to write everything down,” Woodward says.
MileIQ, TripLog and Everlance are a few of the apps available that 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, have features to track mileage, but these may require users to manually input trip information.
[Read: What’s My Tax Bracket?]
There’s nothing stopping those who didn’t track their travel in 2021 from claiming a mileage tax deduction when filing their return this spring. “You can do it after the fact, but it’s harder,” Woodward says.
During an audit, taxpayers will need to provide evidence of when they traveled and why. You may be able to piece that together based on bank records of purchases, calendar events and even your phone’s GPS tools. “Google tells me everywhere I went last year,” Newcomer says.
Still, there is no guarantee the IRS will accept documentation compiled after the fact. 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.
More from U.S. News
Everything You Need to Know About Claiming a Mileage Tax Deduction originally appeared on usnews.com
Update 03/17/22: This story was published at an earlier date and has been updated with new information.