Everything You Need to Know About Deducting Mileage on Your Taxes
If you haven't been tracking your mileage for work, MileIQ CEO Chuck Dietrich can give you 6,500 reasons to start.
"Our average user is returning $6,500 in deductions or reimbursements each year," says Dietrich, whose company offers an app to track mileage. If that number seems impossibly high, he adds, "People don't realize how quickly the dollars add up. A 10-mile drive is worth $5.40 [for 2016 taxes]."
It's not just business mileage that adds up either. Miles driven for charitable work, medical reasons or even moving can also be deducted from taxes. However, you need to know the rules for each deduction, 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
While there are several scenarios in which mileage can be deducted from income taxes, self-employed people have access to the highest deduction rate and fewest restrictions.
For 2015 tax filings, the self-employed can claim a 57.5 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. "You may be going to Office Max to buy paper for your printer," Dietrich says, "or scouting out locations for a photography shoot."
Unlike some of the other mileage deductions available, mileage for self-employed workers isn't subject to any threshold requirements. In other words, all miles are deductible regardless of how much a person drives for work.
Nicole Odeh, founder and president of The Small Business Accounting Solutions in Thorndale, Pennsylvania, says consultants for direct sale companies, such as Tupperware or Thirty-One, shouldn't forget that they too are self-employed. Similarly, those working in the on-demand economy, including Uber drivers, fall into this category. "Mileage is something they should definitely be tracking," she says.
Itemize Your Deductions to Save Even More
Self-employed people aren't the only ones who can deduct mileage, but everyone else will need to file a Schedule A and itemize their deductions if they want to get in on the tax savings. "If you're not itemizing, it doesn't matter if you drove 8,000 miles. Sorry," Odeh says.
Those who do itemize may be able to deduct mileage in one of the following three categories:
Medical: Mileage accrued when driving to and from doctor visits, the pharmacy and hospital can all count toward a medical deduction. You can claim 23 cents per mile driven in 2015, but there's a catch. Only medical expenses -- both mileage and other bills combined -- in excess of 10 percent of your adjusted gross income can be deducted. For those age 65 or older, the threshold to claim a deduction drops to 7.5 percent.
Charitable: 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, not driving a child to a volunteer activity. There is no threshold requirement for claiming these miles. "If you drove 50 miles, you get your 50 miles," Odeh says. "It doesn't have to exceed a certain percentage [of your income]."
Business: Employed workers who don't get reimbursed for mileage from their company can deduct it when filing their federal income taxes. Mileage for off-site meetings, conferences and training sessions can all be deducted. "You can even deduct miles if you're looking for a job," says Lisa Greene-Lewis, a tax expert for TurboTax and U.S. News My Money blog contributor. However, a daily commute is not eligible for a deduction. You can claim 57.5 cents per mile as part of unreimbursed employee expenses, but only expenses greater than 2 percent of a person's adjusted gross income can be deducted.
Moving: If you are relocating for work, mileage for your move may be tax deductible as well. Unless you're moving because of a military order, you need to move at least 50 miles and then work full-time for 39 weeks of the 12 months after your move. Then, you can claim a mileage deduction of 23 cents per mile.
The IRS allows people to deduct either the standard mileage amounts listed above or their actual expenses. Greene-Lewis notes programs like TurboTax will walk people through a series of questions to help them determine whether using standard mileage or actual expenses will result in the greater deduction.
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.
Tracking every drive can be a tedious process when done with a pen and paper, but technology is making it easier. "What people don't know is there are services like MileIQ that can automate what used to be a very labor-intensive process," Dietrich says.
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.
For those who didn't track their travel in 2015, it may still be possible to take mileage deductions when filing taxes this spring. However, to do that, you should have evidence of when you traveled and why.
"A lot of my clients, especially those with medical mileage, aren't keeping a log," Odeh says. She says they can document mileage by requesting a print-out of doctor visits and pharmacy pickups from providers. "I have not had a problem with that type of documentation being used."
Mileage 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 deductibility of miles, consult with a tax professional who can evaluate your situation.
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