Ameer Randolph
Small businesses and self-employed individuals can deduct fuel costs from their taxes, but the amount they can deduct depends on the method they use to calculate their deduction. There are two methods to choose from: the standard mileage rate method and the actual expense method. The standard mileage rate method allows individuals to claim a deduction for every qualified business mile driven, while the actual expense method lets individuals write off a percentage of their total car expenses, including fuel, based on how much they use the car for business.
| Characteristics | Values |
|---|---|
| Who can deduct fuel costs? | Self-employed individuals, sole proprietors, owners of LLCs, qualified performing artists, reservists in the U.S. armed forces, fee-based state or local government officials, and individuals travelling for volunteer work or medical appointments. |
| What can be deducted? | The entire cost of operating a vehicle used only for business purposes, or a percentage of the total expenses for a vehicle used for both business and personal purposes. |
| How to calculate deductions | Use either the standard mileage rate or the actual expense method. |
| Standard mileage rate | $0.67 per mile in 2024, increasing to $0.70 in 2025. |
| Actual expense method | Write off a percentage of total car expenses, including fuel, based on the proportion of business use. |
| Other deductible expenses | Parking fees, tolls, registration fees, and depreciation. |
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What You'll Learn
Mileage tracking apps
If you're a small business owner who uses your car for business, you can deduct car expenses like gas using the actual expense method or the standard mileage method. The actual expense method lets you write off a percentage of your total car expenses, including gas, based on how much you use the car for business. The standard mileage method gives you a deduction based on the miles driven for work, with the 2024 rate being $0.67 per mile.
Tracking your mileage can be a cumbersome process, and this is where mileage tracking apps come in. These apps use GPS to track your routes and can be a great way to save time and effort. Some popular mileage tracking apps include:
- MileIQ: This app automates mileage tracking and is one of the most popular mileage tracking apps. It allows you to set work hours and classify trips as "business". It integrates with apps like Freshbooks and Excel, and you can export IRS-compliant reports. MileIQ offers a free version with up to 30 automatic trips per month, plus unlimited manual trips and receipts. The premium version for self-employed individuals costs $60 per year or $8 per month.
- Everlance: Everlance is currently the number-one ranked mileage tracker on the App Store, with a 4.8-star rating. It offers multiple options for expense tracking and provides downloadable, IRS-compliant mileage logs. The app also has a feature that scans your expenses and suggests potential tax deductions. Everlance offers a limited free version with 30 automatically tracked trips per month, and additional trips can be tracked manually.
- Keeper: Keeper is an app that can do all the expense tracking for you by automatically scanning your credit card and bank transactions for car expenses.
- Timeero: Timeero is a mileage tracking app that allows you to track mileage and define the mileage reimbursement rate.
The best mileage tracking app for your business will depend on your specific needs. Some factors to consider include whether you need accounting tools, integration with other apps, a free version, or the ability to handle varying routes.
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Standard mileage rate
If you use your car for business, you can deduct car expenses like fuel using either the actual expense method or the standard mileage rate method. The standard mileage rate method is based on the miles driven for work, with the 2024 rate being $0.67 per mile. This rate is set by the IRS and is updated annually.
To calculate your deduction using the standard mileage rate, you must first track your miles using a mileage log or app. Then, multiply your business mileage by the standard mileage rate. For example, if you drove 5,000 miles for business, your deduction would be 5,000 miles x $0.67 per mile = $3,350.
It is important to note that if you choose to use the standard mileage rate method, you cannot claim fuel or other expenses like insurance and tires as separate expenses. These costs are already included in the IRS's standard rate. However, some car-related costs, such as parking fees, registration fees, and tolls, can be claimed separately in addition to the standard mileage rate.
The standard mileage rate method is generally suitable for those who drive a lot for work, while the actual expense method may be more beneficial for those who do not drive as much for business purposes. The actual expense method allows you to write off a percentage of your total car expenses, including fuel, based on the proportion of business use.
If you qualify for both methods, it is recommended to calculate your deduction using both methods and choose the one that gives you the largest deduction. Additionally, if you use the standard mileage rate method in the first year you use your car for business, you can choose to switch to the actual expense method in later years. However, if you use the actual expense method in the first year, you must continue using this method for that specific vehicle in future years.
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Actual expense method
The Internal Revenue Service (IRS) offers two ways of calculating the cost of using a vehicle for business: the standard mileage rate method and the actual expense method. The actual expense method is one way small businesses can deduct fuel costs. This method is also suitable for freelancers, independent contractors, and self-employed workers.
The actual expense method allows you to write off a percentage of your total car expenses, including fuel, based on how much you use the car for business. To calculate the deduction, add up all the money spent on operating your vehicle and multiply that figure by the percentage of the vehicle's business use. For example, if half your mileage is for business, multiply the total expenses by 50%. This method requires you to track all your vehicle expenses, although apps are available that can do this automatically by scanning credit card and bank transactions.
The actual expense method also allows you to itemize costs like fuel, maintenance, insurance, repairs, tires, registration fees, licenses, and depreciation. Other car expenses for parking fees and tolls attributable to business use are also separately deductible.
The standard mileage rate method provides a deduction based on the miles driven for work. For 2024, the rate is $0.67 per mile. This method does not allow you to claim fuel as a separate expense as it is included in the standard rate. However, some car-related costs, such as parking fees, registration fees, and tolls, can be claimed on top of the standard mileage rate.
You can use both methods to calculate your deduction and then choose the one that gives you the largest deduction.
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Business vehicle tax deduction
As a small business owner, you can deduct the cost of operating cars, SUVs, and pickup trucks used for business activities. This includes the cost of fuel, maintenance, insurance, and registration fees. If you use your vehicle for both business and personal purposes, you can only deduct the cost of its business use.
There are two main methods for calculating your business vehicle tax deduction: the standard mileage rate method and the actual expense method. The standard mileage rate method allows you to claim a deduction for every qualified business mile you drive. For example, in 2023, self-employed individuals could claim 65.5 cents per mile for miles driven for work. In 2024, this rate increased to 67 cents per mile. To use the standard mileage rate, you must own or lease the car and not operate five or more cars at the same time.
The actual expense method allows you to claim a deduction for a percentage of the total amount you spend on your car for business purposes. This includes fuel, maintenance, insurance, and depreciation. To use this method, you must keep track of the amounts you pay for your car throughout the year and calculate the percentage of business use.
It's important to maintain accurate records of your vehicle's usage, including a logbook documenting business use and all related expenses. This is crucial for substantiating your claim and ensuring you don't exceed the maximum amount you can write off, which is determined by factors such as the vehicle's load capacity and the percentage of business usage.
Additionally, if you lease a vehicle, you may need to subtract an "income inclusion" amount from your deductible lease amount if the value of the leased vehicle is above a certain threshold. This rule aims to equalize the tax benefits of leasing and owning business vehicles.
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Self-employed deductions
If you're self-employed and use your vehicle for business, you can deduct car expenses like fuel using two methods: the standard mileage method or the actual expense method.
Standard Mileage Method
This method gives you a deduction based on the miles driven for work. The standard mileage rate for 2024 is $0.67 per mile. With this method, you won't be able to claim fuel as a separate expense because it is already included in the IRS's standard rate. However, some car-related costs can be added on top of the standard mileage rate, including parking fees, registration fees, and tolls. You will need to track your miles using a mileage log or app and then multiply your business mileage by the standard mileage rate.
Actual Expense Method
The actual expense method lets you write off a percentage of your total car expenses, including fuel, based on how much you use the car for business. This method requires you to track all of your vehicle expenses, which can be time-consuming. However, it might be more financially beneficial, especially if your vehicle expenses are high due to fuel consumption, road tax, insurance, etc. With this method, you can also deduct other car expenses, such as parking fees, tolls, maintenance, and insurance.
It's important to note that if you choose the standard mileage method in the first year of using your car for business, you may be restricted from switching to the actual expense method in later years. Additionally, corporations cannot use the standard mileage rate and must use the actual expense method for corporate-owned vehicles.
To maximize your deductions and ensure compliance with the applicable regulations, it is recommended that you consult with a tax professional or refer to the IRS guidelines for the most up-to-date and comprehensive information.
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Frequently asked questions
To calculate your deduction, track your miles using a mileage log or app, then multiply your business mileage by a standard mileage rate set by the IRS. For 2024, the rate is $0.67 per mile.
The actual expense method lets you write off a percentage of your total car expenses, including fuel, based on how much you use the car for business. You will need to track all of your vehicle expenses.
If you use the standard mileage rate in the first year, you can choose to switch to the actual expense method in later years. However, there are some restrictions when it comes to switching between the two methods.
Self-employed individuals, sole proprietors, and owners of limited liability companies (LLCs) with a tax classification that allows pass-through income on Tax Form 1040 qualify for the write-off.
Other deductible car expenses include parking fees, registration fees, and tolls attributable to business use, whether you use the standard mileage rate or actual expense method.
