Standard Mileage Deduction vs. Actual Car Expenses Method

If you’re self-employed, you can generally deduct the expenses of using your vehicle to do your job. Your two options are the standard mileage deduction and the actual expenses method.

What is the standard mileage deduction?

The standard mileage deduction gives you a fixed deduction based on the number of miles you drive. The current rates are as follows:

  • 2022: 58.5 cents per mile
  • 2021: 56 cents per mile
  • 2020: 57.5 cents per mile

What mileage can you deduct?

You can deduct all of your business miles. Business miles are the miles you drive from one location to another.

For example, if you deliver food for DoorDash, business miles are from restaurants to your customers then to the next restaurant. Uber and Lyft drivers can also deduct the miles for driving around trying to find a better place to find passengers.

You can’t deduct commuting miles. Commuting miles are from your home to a job or a job to back home. You may be able to avoid commuting miles and count these miles as business by setting up a qualified home office.

What does the standard mileage rate cover?

The standard mileage rate covers all of the expenses to own and operate your car. This includes

  • Gas
  • Depreciation
  • Maintenance
  • Repairs
  • Insurance

The standard mileage rate does not include things you buy for inside of your car, like dash cams or food delivery holders. It also doesn’t include tolls and parking fees (which you can separately deduct in full during business trips).

Accounting tip: When you take the standard mileage deduction, enter the car expenses it covers as personal expenses in QuickBooks or your other accounting software.

  • They won’t be business deductions since you’re taking the standard mileage deduction instead.
  • If you want to track these expenses in case you want to use the actual expenses method, use separate categories from any expenses that aren’t covered from the standard mileage deduction. This will let you easily figure out what can or can’t go on your Schedule C.

How should you track your miles?

Under IRS regulations, you must keep a mileage log of your business trips in order to deduct them. A pen and paper in the car is fine, but there are also apps available that help you keep track of your mileage and other information about your vehicle.

For example, if you use QuickBooks Self-Employed, you can download the app, and it will automatically detect and record when you’re driving. You just need to go back later and set which trips were business and which trips were personal.

How and when is the mileage rate set?

The IRS sets the standard mileage rate based on current inflation data and the cost of owning a vehicle. In most cases, the IRS sets the rate for the following calendar year in late fall.

In rare circumstances, such as spiking gas prices, the IRS has changed the rate in the middle of the year. For example, there could be one rate for January through June then another rate for July through December.

What is the actual expenses method?

In the actual expenses method, you track your exact expenses instead of taking the standard mileage rate. The actual expenses method covers the same expenses as the standard mileage rate, so you need to choose which one you want to use.

Like other tax deductions, you need to keep receipts for everything you want to deduct.

Is it better to use the standard mileage rate method or the actual expenses method?

Most people will save more using the standard mileage rate. There is only one mileage rate covering all types of vehicles.

Most passenger cars, light trucks, and SUVs cost less to operate than what the standard mileage rate gives. Of course, you might want to track your own expenses to be sure.

How do you calculate the actual expenses method?

Just like with the standard mileage deduction, you can only deduct business trips. The way you do that is by dividing your business miles by the total number of miles you drove during the year. This means you will still need to keep a mileage log.

For example, if you drove 20,000 miles during the year and 15,000 were for business, your business percentage is 75%. 

Multiply your total car expenses by 75% to get what you can deduct. For example, if you spent $2,000 on car insurance, you can deduct $1,500.

If you have business-specific expenses, like the extra cost to add business coverage to your auto insurance policy, you can deduct those expenses in full.

Conclusion

Most self-employed workers will save more using the standard mileage deduction. No matter which method you use, you need to keep a mileage log showing your business miles.