Mileage vs Actual Expenses

This article is educational only. It is not tax, legal, insurance, or financial advice. Talk to a qualified tax professional about your own situation before you file.

US independent contractors usually choose between two ways to deduct vehicle costs: the standard mileage deduction or the actual expense method. Which one fits depends on your vehicle, your miles, and what your car actually costs to run.

The standard mileage deduction

You multiply your business miles by the IRS rate for that tax year. The rate is meant to cover fuel, maintenance, tires, insurance, and depreciation in one number, so you do not deduct those vehicle costs separately.

• Simple — you mainly need a clean, dated record of business miles.
• Often better for high-mileage drivers in an inexpensive, reliable car.
• Some costs, such as tolls and parking, are generally handled separately from the rate.

The actual expense method

You add up what the vehicle really cost you for the year — fuel, oil changes, repairs, tires, insurance, registration, depreciation or lease payments — and deduct the business-use share of that total.

• More paperwork — you need receipts for everything.
• Often better for an expensive vehicle, heavy repair years, or lower annual miles.
• You still need your mileage records to work out the business-use percentage.

You generally pick one per vehicle

For the same vehicle and the same tax year, drivers generally cannot use both methods. There are also rules about switching methods in later years, especially once depreciation has been claimed. That is exactly the kind of question to put to a tax professional.

How TRUE Driver Profit fits in

TRUE Driver Profit estimates your operating profit from your own numbers: the gas information in your Profile — your MPG and gas price — plus your Vehicle Cost per Mile setting. Those two settings cover fuel, maintenance, repairs, tires and depreciation. Other expenses you log, such as tolls, parking and insurance, are subtracted on top of them.

The IRS mileage rate is a tax concept. It does not control TRUE Profit calculations. Your profit numbers reflect what driving actually costs you, which is usually different from what you may be able to deduct.

What to do with this

1. Keep logging miles and expenses all year, whichever method you eventually use.
2. Keep your gas and Vehicle Cost per Mile settings current so profit stays honest.
3. Bring your mileage totals and expense records to your tax professional and let them compare the two methods for you.