Tax myth: You must track your miles
If you drive a car for your 1099 contractor work, you can claim a big tax write off on associated expenses. There are two ways: keeping track of car expense, or tracking mileage. The mileage method was introduced by the IRS to simplify the process of trying to keep track of all of your gas / car maintenance / receipts year-round. But does claiming mileage actually save you more money on taxes?
Option 1: Car expense records
At the end of the year, sum up all of your car expenses such as gas, insurance, repairs,️ oil, registration etc, and write off the approximate proportion of the time you drove your car for work.
Option 2: Mileage tracking
Throughout the year, record miles driven for work with a logbook or app. At tax time: claim 54.5 ¢ (the exact amount changes every year) in tax write offs for every mile you’ve recorded.
So… which option saves more money?
There’s no one right answer for everyone, but there’s a right answer for you! Let’s start by outlining two examples with different of driving behavior and some assumptions about the kind of car you drive and gas prices.
Example 1: Typical drivers… save more with car expenses.
Let’s say you drive about 10,000 miles per year, half of that for work. On an average week, that’s about 200 miles, or 5–10 hours of driving. Assuming average stats about car repairs needs, mpg vehicle efficiency, and gas prices, it turns out the actual car expense method is a lot better!
That’s a pretty big difference! With the actual expense method, you’ll be claiming an additional $655 in tax write offs which is about $200 saved at tax time (assuming 30% effective tax rate).
Example 2: Heavy drivers… save more with miles.
Let’s say you drive a lot for work. Maybe you drive rideshare or delivery and you rack up 20,000 miles per year, 75% for work. Here’s how your taxes would break down:
Bottom line: if you drive a lot, track miles. Otherwise, don’t bother. Either way, use Keeper.
This post was originally published on the Keeper Tax Blog.
