Deducting your vehicle: mileage vs. actual expenses

Business driving is one of the largest deductions available to the self-employed, and one of the most commonly under-claimed because people do not track it. The IRS lets you deduct the cost of using a vehicle for business in one of two ways: a standard mileage rate, or the actual expenses of operating the car scaled to your business use. Choosing well can be worth thousands a year — but only if you keep the records that make either method defensible.

What counts as business miles

Business miles are trips with a business purpose: driving to a client, to a job site, to the bank for a business errand, to pick up supplies. What does not count is your regular commute — driving from home to a fixed workplace is personal, even for the self-employed. A crucial exception: if your home is your principal place of business, trips from your home office to clients are business miles, not commuting. That single fact makes the home office and mileage deductions work together.

Method 1: the standard mileage rate

You track business miles and multiply by the IRS standard rate for the year. That rate bundles in gas, maintenance, insurance, and depreciation — you do not deduct those separately. It is simple, requires only a mileage log, and tends to win for fuel-efficient, inexpensive, high-mileage vehicles. The rate changes annually, so check the current IRS standard mileage rate rather than relying on last year's number.

Method 2: actual expenses

You add up everything the car costs to run for the year — gas, oil, repairs, tires, insurance, registration, lease payments or depreciation — and deduct the business-use percentage. If 60% of your miles are for business, you deduct 60% of the total. This method tends to win for expensive vehicles, heavy repair years, and low-mileage-but-costly driving, because your real costs are high per mile.

The record that makes or breaks it

1. Log every business trip: date, destination, purpose, and miles. A mileage app that runs in the background and lets you swipe business or personal is the least painful way to do this.
2. Note your odometer at the start and end of the year. Total miles for the year plus your business miles gives the business-use percentage the actual method needs.
3. Keep receipts if you use actual expenses — gas, repairs, insurance, registration. If you use standard mileage, the log alone is enough.
4. Reconstructing a year of mileage from memory in an audit does not go well. The log is the deduction; without it, the number is a guess the IRS can disallow.

The bottom line

The self-employed who drive for work should never guess. Track your miles from day one with an app, run both methods once at tax time, and take the larger deduction — subject to the first-year rule that can lock you out of standard mileage if you start with actual. The whole game is recordkeeping: a real contemporaneous log turns a fuzzy estimate into a bulletproof deduction. Because vehicle depreciation, leasing, and heavy-vehicle rules add wrinkles, a CPA is worth a call in the first year with any new business vehicle.