Tax Law and News Advising Your Self-Employed Driver Clients: Don’t Overlook Lucrative Mileage Deductions Read the Article Open Share Drawer Share this:Click to share on Twitter (Opens in new window)Click to share on Facebook (Opens in new window)Click to share on LinkedIn (Opens in new window) Written by Mike D'Avolio, CPA, JD Modified Feb 3, 2017 3 min read You may have some part-time or full-time Uber/Lyft drivers and traditional truck drivers as clients. These drivers must keep track of their miles, in order to deduct business vehicle expenses, which can seriously lower their tax burden. Depending on what type of driver they are, there are various ways to use the mileage log and the IRS’s self-employed mileage deduction to their advantage. This provides a teachable moment for the tax professional to pass along some tax advice to their clients, so that they don’t miss out on important deductions and perform the proper recordkeeping throughout the year. You may consider talking to your clients about this topic, or sending out the information to bolster your value as their trusted tax advisor. Choose a Method First, you need to decide which deduction method to use. The IRS gives you two options: the Standard Mileage Rate Method and the Actual Expenses Method. You won’t be able to take both deductions, so you need to evaluate which will bring you the biggest benefit. The Standard Mileage Rate Method is the simplest method for calculating your vehicle-related deductions. For the 2016 tax year, the rate is 54 cents per business mile. (It changed to 53.5 cents for 2017). That means that if you drove 10,000 business miles in 2016, your tax deduction would be $5,400. If you drove 30,000 business miles, your tax deduction would be $16,200. To claim this deduction, you need to keep a detailed mileage log that includes dates, start times and end times, the activities involved, and the beginning and ending odometer readings. With the help of a mileage and expense-tracking app, such as the one offered within QuickBooks® Self-Employed, you can do this automatically and integrate it with your other deduction tracking. The app also allows for easy categorization, based on business or personal trips, and won’t drain your smartphone battery. The Actual Expenses Method allows you to deduct your vehicle’s actual expenses. Eligible expenses include: Depreciation Lease payments Registration fees Licenses Gas Insurance Repairs Oil Garage rent Tires Tolls Parking fees This method also requires a detailed log. Using this method, you can only deduct the portion of the costs that are associated with your self-employed work. For example, if your total actual vehicle expenses for 2016 are $3,000, and you used the vehicle 75 percent of the time for business (3,000 x .75), the allowable deduction would be $2,250. Calculate the Costs Unfortunately, there is no easy way to select the best method for you without calculating both. But, there are a few general guidelines that can help you understand where you may match up. Short-Distance Drivers If you drive less than 10,000 miles a year, the Actual Expenses Method may be right for you. In general, some vehicle expenses, such as depreciation, insurance and interest, are pretty much fixed costs. For example, say your fixed costs for the year amount to $4,800 and you drove 2,000 miles (all for business), here’s the calculation: Standard Deduction: 2,000 x .54 = $1,080 Actual Expenses Deduction: $4,800 If you drove a bit more – say 8,000 miles (all for business) – your numbers would look a little different, though the actual expense method would still be in your favor. Take a look: Standard Deduction: 8,000 x .54 = $4,320 Actual Expenses Deduction: $4,800 In both situations, you’re better off using the actual expenses deduction. For part-time rideshare or delivery drivers, this may be the right method for you. Long-Distance Drivers If you have an inexpensive car that gets great gas mileage, you may be better off with the Standard Mileage Method. For example, if you drove 30,000 business miles in 2016, your standard mileage deduction would be $16,200, which is likely far greater than what it would cost you in actual expenses to keep the car running. The standard deduction may be the most favorable deduction method for full-time rideshare or truck drivers. For more tax tips and self-employment solutions, check out our other self-employed content or visit the QuickBooks Self-Employed Center. Previous Post Help Your Clients Jumpstart Retirement Savings With a myRA Account Next Post February 2017 Tax and Compliance Deadlines Written by Mike D'Avolio, CPA, JD Mike D’Avolio, CPA, JD, is a tax law specialist for Intuit® ProConnect™ Group, where he has worked since 1987. He monitors legislative and regulatory activity, serves as a government liaison, circulates information to employees and customers, analyzes and tests software, trains employees and customers, and serves as a public relations representative. More from Mike D'Avolio, CPA, JD Comments are closed. Browse Related Articles Practice Management Consultant spotlight: Drew Hickman Practice Management Top 7 advantages of choosing a firm niche Advisory Services Your firm: Maximizing value over volume Practice Management ProSeries® Tax spotlight: Nayo Carter-Gray, EA, MBA Practice Management Consultant Spotlight: Katherine Weiler Webinars Technology and Your Clients: Dec. 19 Webinars Escalating IRS Correspondence: Dec. 17 Webinars Intuit Hosting Hacks: Dec. 18 Webinars 5 Tips to Automate Tax Season: Dec. 17 Webinars SafeSend + Intuit = Engagement: Dec. 10