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A sole-proprietor who uses their vehicle for work-related reasons – no matter how often – is eligible for a mileage tax deduction.

But what in the world does that even mean?

When it comes to claiming mileage on taxes, there are two methods you can use:

📒  The standard mileage rate

🧾  or the actual vehicle expenses

But how do they work and which of those IRS-permitted methods of calculating mileage tax deduction is best for a self-employed individual?

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There are certain benefits to both methods of calculating mileage for taxes.

Depending on how often you use your vehicle for business reasons (and the vehicle itself), a method that gives you a lower deduction this year might save you more the following year.

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In this method, you calculate your mileage write-off by taking the total number of miles you drove for business purposes the entire year with a fixed number of cents specified by the IRS for that year.

The IRS rate for mileage deduction (i.e., that fixed number of cents) fluctuates every year, based on factors like gasoline prices. 

Here’s how the rates have changed over the last 5 years:

Calculating your deduction using this method is fairly simple.

Let’s say you drive a total of 30,000 miles in 2021, with 15,000 miles driven for business – your total tax deduction would be 15,000 miles x 56 cents =$8,400.

Pros and Cons of Using the Standard Mileage Rate Method – header H3

Here’s why you’d want to prefer using this method:

• The amount is easy to calculate
• Mileage logs are easier to keep

The only major drawback is that you might get a larger deduction if you opt for the actual vehicle expense method (more on that shortly).

As a general rule of thumb, you should use this method if you drive a small or an inexpensive car that doesn’t burn much fuel and is cheaper to maintain/repair (and you make a lot of business trips throughout the year).

2. Header H3 – If you drive for work …

2. Header H3 – If you leave town for work …