Tips for Income Tax Mileage Deductions

Using your car for business purposes can get expensive when you do a lot of work-related driving. Some employers pay mileage reimbursement. If that’s not true in your case, or if the reimbursement is less than the Internal Revenue Service allows, you can deduct unreimbursed mileage on your tax return.

Standard Mileage Rates

Each year, the IRS publishes standard mileage rates based on average vehicle operating costs. For example, in 2012, the standard rate for business mileage was 55.5 cents per mile. Employers may pay tax-free mileage reimbursements up to the standard rate. Typically, employers don’t pay more because the excess amount is considered taxable compensation and require calculation and withholding of payroll taxes. If you are not reimbursed for work-related driving, the standard rate is the amount you may deduct for business use of your personal vehicle.

Deductions and Reimbursements

When an employer pays a mileage reimbursement equal to the IRS standard rate, you don’t get a tax deduction. However, the reimbursement is considered a business expense and therefore is not taxable. If your employer pays a portion of the standard rate, you can deduct the unreimbursed portion. For example, if the standard rate is 55.5 cents per mile and your employer pays 30 cents, you may deduct 25.5 cents per mile. Calculate your total deduction by multiplying the unreimbursed mileage rate by the number of business miles driven. Use IRS Form 2106 or 2106EZ to report business mileage expenses and reimbursements.

Keep a Mileage Log

The IRS requires documentation of mileage driven when you take a tax deduction or receive a tax-free reimbursement. Make an entry for each trip that states the starting and ending odometer readings, the date, the purpose of the trip and where you went. Only mileage that is directly related to your work is qualified. Commuting to and from work is not deductible. If you stop to do personal business while on a business trip, the remainder of the trip is not considered qualified mileage.

Using Actual Expenses

Taxpayers have the right to use the actual cost of operating a vehicle instead of the standard rates, but this does require more recordkeeping. You still need a mileage log because you can only deduct the mileage attributable to business use of your vehicle. Keep receipts for gas, oil, car maintenance and repairs along with records of lease payments and car insurance premiums. When you use actual vehicle expenses and include an allowance for depreciation of a vehicle, you may not use the standard mileage rate in future years for that vehicle.

Other Deductible Mileage

The IRS sets standard mileage rates for certain types of non-business travel. If you drive as part of charitable work, you can deduct 14 cents per mile. Driving related to moving or medical care has a standard rate of 23 cents per mile. As with business use of a vehicle, you can use actual vehicle operating expenses instead.

About the Author

Based in Atlanta, Georgia, W D Adkins has been writing professionally since 2008. He writes about business, personal finance and careers. Adkins holds master's degrees in history and sociology from Georgia State University. He became a member of the Society of Professional Journalists in 2009.

Zacks Investment Research

is an A+ Rated BBB

Accredited Business.