If you are a small business owner — a sole proprietor, LLC, or S-Corp — then you should know all about the IRS mileage tax deduction. If you don’t, then you are missing out on a valuable deduction that can reduce your taxable income significantly.
It all starts with tracking the miles you drive your car for business purposes. Though you certainly can track it manually (when I started my first business, I had a reporter’s notebook in the car to write down the mileage) there are now apps that make it easy. I personally have used MileIQ for years (about $60 a year) but I was recently introduced to a free app called Everlance. It seems pretty straightforward. There are others, too, so do your own research and see what works for you.
The IRS sets the amount of the deduction each year. In January 2022, it was set for $00.585 per mile. Then in July, in response to rising inflation and travel costs, they raised it as of July 1 to $00.625. Now for 2023, they have raised it again to $00.655 and it will remain that amount until there is another announcement.
This mileage tax deduction is for those who report revenue and expenses on a Schedule C. Employees used to be able to deduct miles they drove on behalf of their employer but that deduction was eliminated in 2018. It was an attempt to get more employers to reimburse their employees (and create bigger deductions for the company itself, reducing their corporate taxes — see what they did there?)
Mileage Tax Deduction vs Actual Expenses
As the business owner, you should decide the first year you use a vehicle for business whether to use the IRS mileage tax deduction or your actual vehicle-related expenses. The mileage is an easier route to take as far as accounting. If you choose to use the expenses deduction, you will need to keep track of every expense — gasoline, oil changes, insurance premiums, car payments, maintenance, license fees, etc. — in addition to your business miles. At the end of the year, you’ll deduct the percentage of your expenses equal to the percentage of how many business miles you drove versus personal miles.
Educate yourself about taxes and tax deductions. Though it’s a little outdated, I did write the Small Business Owner’s Tax Guide to give you an overview. The mileage tax deduction is one that is often missed by small business owners because they are not diligent about tracking their mileage. Do yourself a favor. Track it.
Here’s a quick video I did after a recent Mastermind discussion about the mileage tax deduction.
