One of the perks of living in the United States is the sheer number of tax deductions available to the average person. In order to incentivize things that make society better and assess taxes in the fairest possible way, the IRS will let you deduct all kinds of expenses that you incur.
The story is even better if you’re self-employed. Business owners can deduct almost any expense that’s related to their business, as long as it’s for legitimate business purposes. This opens up a wide range of ways to save money on your final tax bill.
If you work any kind of gig economy job, you should be taking advantage of these deductions. One deduction that’s particularly important to know about if you do any gig economy job that involves driving is the mileage deduction. With this deduction, you can deduct your driving expenses for the entire year.
In this guide, we’ll take a look at a key component of the mileage deduction: the IRS mileage rate. We’ll cover what it is, why it matters, and how you can use it to reduce your taxes.
IRS Standard Mileage Rates 2019
Before we get any further, we want to give you the information you may have come here to find: the specific IRS mileage rates. The IRS has three different rates you can use when calculating your mileage deduction:
- 58 cents per mile driven for business use
- 20 cents per mile driven for medical or moving purposes
- 14 cents per mile driven in service of charitable organizations
All of the above apply to use of a car, van, pickup truck, or panel truck. Note that there are some caveats here. Due to the Tax Cuts and Jobs Act, employees can no longer claim deductions for unreimbursed employee travel expenses. We know the main focus of this article is deductions for business purposes, but this is still good information to know in case you’ve deducted your unreimbursed employee travel expenses in the past.
Also as part of the Tax Cuts and Jobs Act, you can no longer claim deductions for moving purposes, unless you are a member of the Armed Forces on active duty who is “moving under orders to a permanent change of station.” If this situation applies to you, then you’re most likely aware of the rules and details.
Beyond these changes, however, the mileage deduction still remains a very powerful tool for business owners. Below, we’ll take a closer look at why the business standard mileage rate still matters, as well as how to use it to your advantage.
Why the IRS Mileage Rate Matters
So if you didn’t just come to this article looking for a list of the current rates, then you’re likely wondering why you should care about the mileage rate. After all, a measly 58 cents per mile isn’t going to help you much, right?
This is where it’s worth taking a closer look at how the mileage deduction works for businesses. In reality, the IRS allows you to use two different methods for deducting your driving expenses. So far, we’ve been talking about the method in which you just track your total business mileage.
However, there is another method: actual costs. In this method, you add up all the real costs for business use of your vehicle (fuel, maintenance, car payments, etc.). You can then count this final number as a business expense and deduct it on your income taxes.
The main drawbacks of this method are that it’s very time-consuming and prone to errors. To make things easier, the Internal Revenue Service created the mileage deduction. This simplifies things immensely. Instead of tracking all your business driving expenses, you can just track the miles you drive. This is much easier, especially with all the mileage tracking apps that can now automate much of the process.
Going back to the amount of the mileage deduction, 58 cents per mile may not seem like much, but all those miles can really add up if you use your car for rideshare or food delivery driving. Even assuming you just drive an extra 50 miles per week when using your car for business purposes, that adds up to $1,508 that you’d be able to deduct from your taxable income.
How to Decide If You Can Deduct a Mileage Expense
So how do you decide if the driving you’re doing is deductible? Luckily, it’s quite simple to decide whether or not the driving you’re doing is something you can deduct.
To start, you need to be using your personal vehicle. This is to say, you can’t deduct the cost of using a vehicle that an employer provides to you for free. You also can’t take deductions if you’re using a rented vehicle for business purposes (though you can deduct the cost of renting the vehicle, which will often result in even greater savings).
Let’s look at a real-life example to get a better understanding of deductible costs. If you drive for Uber, then you can deduct all the miles you drive while you’re picking up passengers and transporting them. Using a mileage tracking app, it’s easy to keep track of these miles, as most of these apps will automatically track your miles any time your car is moving.
We should include one additional warning just to be thorough. You cannot deduct your mileage expenses if you receive mileage reimbursement from the person that employs or contracts you to do the driving. This is rare with most transportation and food delivery apps, but on the off chance that you’ve found a gig that does reimburse your driving expenses, make sure not to deduct them when you do your taxes.
IRS Mileage Rate FAQ
To conclude this guide, here are answers to some common questions about the IRS mileage rates and mileage deduction:
1. How can I avoid getting audited when tracking my mileage expenses?
We should start by saying that there is no way to guarantee against an audit. Even with the best accountant in the world, the IRS could still decide to randomly audit your return.
That being said, there are things you can do to minimize your chances of getting audited and protect yourself if you do. Mainly, you should keep very detailed records. With regards to mileage, always use a mileage tracking app to be sure you don’t forget to track your mileage. And keep those mileage records in a safe place in case of an audit.
2. Is there a limit to the number of miles I can deduct?
No, the IRS places no limit on the number of miles you can deduct. As long as you have documentation to prove that the miles were in fact for business purposes and you did, in fact, drive them, you should never worry about deducting “too many” miles.
3. Will the mileage rates increase next year?
Most likely, yes. The IRS tends to increase the mileage rates for each year in order to keep up with inflation. For instance, in 2019 the business mileage rate increased to 58 cents per mile (up from 54.5 cents per mile in 2018). Beyond this trend, however, we can’t know precisely how much the mileage rate will be in future years — only that it will likely increase.
4. Can I deduct the purchase price of my vehicle?
It’s possible, but probably not worth the trouble. Section 179 of United States Internal Revenue Code states that you can depreciate the cost of a vehicle for business purposes (within certain limits). However, this does not apply to any “vehicle used directly in the trade or business of transporting persons or property for pay or hire.” Unfortunately, rideshare driving falls under this category, since you’re “transporting persons for hire.”
If you’d like further information on this deduction (and whether or not you can use it in your business), check out this guide.
Understand Mileage Rates and Maximize Your Tax Deductions
We hope this guide has helped you understand how mileage deductions work, as well as what a beneficial tool they can be for you as a gig economy worker and small business owner.
The next time it comes to file your taxes, be sure to take the mileage deduction. And to get prepared, start tracking your miles today!