Know Your Driving Deductions
Tracking Your Business Mileage? 7 Things Freelancers Should Consider
Working in the gig economy means constantly adjusting to a life outside the traditional trappings of a full-time office. After all, there really is no such thing as a free lunch when you’re self-employed—unless you’re onsite for the day with a client that offers catering, of course.
But beyond how to quietly but effectively take advantage of your client’s breakroom spread, one of the most important practices any freelancer or contractor needs to master is navigating their taxes—specifically their deductions. And if you use your car during the course of your work, this means tracking write-offs related to the car you use for business.
Before you read on, please note that our intrepid lawyers want us to make clear that Fair does not provide tax, legal or accounting advice. We offer the below for general informational purposes only. After all, tax laws are complex, and your business-related car expense deductions can depend on a number of factors, including whether you own, lease, or rent your vehicle. For these matters, you should consult your own tax, legal and accounting advisors.
With all that said, here are seven things you might want to consider when figuring out your business mileage situation in advance of April 15.
Mileage: An Oft-Forgotten Writeoff
If you use your car for business at all—say, driving to client meetings, using it for assignments, or maybe as an Uber driver—driving your car is part of your job. As a result, you can write off a percentage of your business mileage (or vehicle expenses; more on that later) in your taxes. For 2018, the IRS has listed their standard mileage rates at 54.5 cents for every mile of business travel, a 1 cent increase from 2017’s rate. True, that bump probably won’t help you afford that yacht you’ve been eyeing. But when you’re freelancing, every little bit helps.
‘Business Mileage’ Is Pretty Specific
So what technically falls under “business miles?” Talking about work with a friend while you’re driving for a night out on the town? Uh, no. In fact, the IRS won’t even compensate you for your regular commute, whatever that might look like. What does count as business mileage are things like travel for client meetings or customer visits, business-related drop-offs and pickups at FedEx or the post office, travel between separate offices, trips to the store to buy things related to your business, travel for customer meals, and travel to conferences and other business-related events. Be sure to check with your tax advisor to see if you qualify for the above deductions, as the rules for deducting business-related travel costs are complex and vary from person to person.
Mileage vs. Actual Expenses
Tracking your mileage is actually one of two ways you can calculate your car-related business deductions. Your second option for calculating car-related write-offs is through the Actual Vehicle Expenses method. This means you’ll have to keep meticulous records surrounding every aspect of your car use—including gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation (or lease payments) attributable to the portion of the total miles driven that are business miles. This may be a little extra work, but it could result in a bigger deduction at the end of the year.
Keep in mind that you can only choose to use the mileage method, otherwise known as the Standard Mileage Rate, if you own or lease. And if you choose to use the Standard Mileage Rate, it means ruling out deductions for car-operating expenses. Rather, as explained above, you’d simply take a deduction for a specific number of cents for every mile as dictated by the IRS. This means you’ll have to keep an accurate log of every mile you drive for business, then multiply that number by the standard mileage rate.
Business vs. Personal Considerations
Things do get a little complicated when you use your car for both business and personal purposes. As the IRS states, “The costs of operating a car, truck, or other vehicle in your business are deductible.” So if you use your vehicle for work and in your personal life, you can only deduct mileage or expenses (depending on the method you choose) related to your car’s business use.
Keep Solid Records
In the end, claiming car expenses will come down to keeping detailed records of your car use—the more thorough the better. On the whole, you must record the dates of your trips and the mileage for each trip, along with the related business reason for your travel and where you drove. Such records will be required to support the expenses in the case of an IRS audit.
Ask About Mileage Reimbursement
Some companies have a policy in place to reimburse freelancers or contractors for their miles traveled in relation to their job—but not all of them publicize it. If you drive a lot for your client, you might want to check in with your supervisor or human resources to see what they cover. Some companies pitch in with gas vouchers and basic maintenance, so it never hurts to ask. But remember: if they do reimburse, you can’t go on to claim these miles as part of your tax filings to the IRS.
Use Tech To Help
You can always go old school and keep a notebook and pen in your glove compartment, recording each business trip analog-style. In that case: respect. But there are also some great apps that can help you stay organized. One is Harpoon, which is a mileage tracker that helps freelancers with scheduling, time-tracking, invoicing, budgeting and more. Then there’s MileIQ, which is strictly a mileage-tracking app that has bells and whistles such as automatic tracking and reporting, and that syncs seamlessly with Microsoft Office. There’s also Hurdlr, which combines mileage tracking with a real-time view of your expenses, income streams and tax deductions. Regardless of what you choose, tracking your mileage may help make a difference to your bottom line—so go forth and master it!