Let me start by saying this: Never take advice from forums like you see in Facebook groups. Just…. don’t do it.
Also be careful to verify information you get on any posts on the internet. Verify. Identify the sources they use, and check with your tax professional. Also, understand that informational articles like this are not legal or tax professional advice (see more at the end of this).
The problem is that with taxes, there’s a lot of bad information out there. Some bad information can cost you in additional tax money. Other bad information could get you in trouble if you claim things you shouldn’t. Be careful.
Two common myths about claiming the standard mileage expense.
The first myth is that you can claim your mileage expense AND your costs for gas, insurance, maintenance, etc. Don’t do it. It’s either or, not both and. Claiming both is a quick way to get a nice little letter from the IRS. It’s a letter you don’t want. to receive.
The second myth is one that happens because people go too far in the opposite direction from the first one. They misunderstand the either/or part of standard mileage deduction to say that you cannot claim ANY other expenses. The good news is that believing this myth won’t get you in trouble with the IRS. The bad news is it gets you in trouble with your bank account. You end up paying more taxes than you should.
I can understand the confusion. There are just so many rules out there. And here is the crazy thing that adds to the confusion. There are some items we normally associate with your car that you CAN claim on top of the standard mileage deduction.
Understanding the mileage deduction
If you totally understand the mileage deduction, it helps understand the differences.
There are some areas where the IRS lets you simplify the book keeping when there are several items to track for one deduction. They give you the option to claim a standard deduction instead of itemized deductions. For people that are allowed to claim a home office deduction there’s a simple flat rate or you can track everything. They introduced the standard mileage amount to make the car expense easier to track and report. The easier record keeping makes it easier for us and reduces all the forms and paper work they have to sift through.
Very simply, the IRS put a list of items out that are part of tracking your actual vehicle expense. You can add up all of these items and claim the business portion of that total, or you can just track the miles you drove and write off a standard amount per mile (which is 58 cents per mile for the 2019 tax year). Here’s a screenshot of the list.
The idea is that the mileage deduction is an easier replacement of the actual expenses. This means you can’t claim both. It is one or the other.
At the same time, it’s only meant to restrict counting the items IN THE LIST. It is not meant as a replacement for all business expenses. That means your expenses not related to your car are not part of the either/or restriction. Your business cell use, equipment and other direct business expenses are all claimable.
There are also some car-related costs that still can be claimed when taking the mileage deduction.
But doesn’t that fly in the face of the “either/or” designation? That’s a little confusing.
Here’s the thing. The distinction isn’t between the mileage deduction and all car-related expenses. The distinction is between the car-related items in the IRS’s list of what entails actual cost. The best way I can think to put it is, if it’s an item that is not on the list but is claimable as a part of running your business, it may be an allowable expense (but just double check to make sure)
There are three sources that I relied on for this information. The first is IRS documentation (particularly publication 463 which goes into detail about the business use of your vehicle. Another is “Income Tax Guide for Rideshare and Contract Delivery Drivers*” by John C White. John White was a tax analyst for the IRS and a licensed attorney in Texas. The other is “J.K. Lasser’s Guide to Self Employment*” by Attorney Barbara Weltman which gets into extensive detail about tax documentation.
Below are three car-related expenses that you can claim outside your mileage deduction:
Parking and tolls
Wait, wait, wait. Parking and tolls are in that list. So doesn’t that mean you cannot include them?
If the parking fees or tolls are directly related to your work as a business owner, you can claim them individually from the standard mileage deduction. This is a safe one – the IRS specifically makes an exception (IRS Publication 463) where they say “In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls.” Why the discrepancy? They clarify that “Parking fees you pay to park your car at your place of work are non deductible commuting expenses.” In other words, regular parking and tolls related to things like commuting and personal use of your vehicle are considered a normal part of operating your car, and so cannot be counted when you claim the mileage amount. However, costs directly related to your business are separate, and can be claimed even when taking mileage.
You also do not need to prorate the expenses. It is a direct business expense with no personal use involved, which means you claim 100%. If you do claim it, it’s wise to keep a trip log that notates specifically when, where and why you had that expense.
Auto Loan Interest
If you have a loan (not a lease) on the car you use for delivery, you can claim the business portion of the interest on that loan on top of the standard mileage.For example, if 80% of your miles are for business, you can claim 80% of your loan interest. It is ONLY the interest portion you can claim – the principle is related to the property and therefore related to the depreciation part of actual expenses.
First off, interest is not a necessary part of operating your car. Interest is more related to obtaining the car if you are unable to pay cash. Second, interest expense related to business purchases is a completely different expense category. I think these are the reasons they did not include it as part of the list of actual expenses.
John White explains in his “Tax Guide for Rideshare and Delivery Contract Drivers*” that “you can deduct the portion of the interest expense on a car loan that represents your business use of a car” and that “these actual expenses are deductible whether you use the Standard Mileage Rate or the Actual Expense method.” The “J.K. Lasser’s Guide to Self Employment (2nd Edition)*” concurs, stating that “Regardless of which method you use, you can also deduct: Interest on a loan to buy a vehicle.”
Personal Property Tax on your Car
I’ll admit that I find this one kind of curious. In many places you pay your property tax at the same time you do your licensing and registration fees. So we figure it’s just a part of that, right?
I think it comes down to the fact that property tax in general is a deductible expense. In fact you can claim it as a deduction if you itemize. Any property tax that you pay on business property (including the business portion of your car) is something you can claim on the taxes part of your Schedule C. So, say you have a newer car with $400 in property tax and you drove your car 80% of the time for business. You could claim $320 in property tax on your schedule C.
If you itemize your deductions, you cannot claim the full property tax amount if you do claim the business portion on Schedule C. You can only claim the remaining portion (so if 80% was for business, you could only itemize the remaining 20%). Why not keep it simple and claim all of it? Itemized deductions do not reduce your profit. That means they don’t reduce the amount your self employment tax is based on. Your taxes are 15.3% higher for every dollar you do not include on your schedule C.
Always verify with a tax professional
Like I said, there’s a lot of information floating around there. If in doubt about claiming any expense, verify. Don’t take my word or anyone else’s.
This information is meant to be just that: information. This is not meant to be anything beyond that, it is not intended as tax advice. I am not a tax professional, I merely assemble information provided through what I find to be reliable sources and present them in a way that I hope is understandable to you. Do not take any of the information on this site as personal or professional tax advice. If you do need professional or legal advice related to your taxes please be sure to seek a qualified professional in your area for such advice.
The bottom line when it comes to claiming expenses is, be reasonable, don’t go overboard, but don’t leave yourself short. Don’t go crazy claiming everything imaginable. That can trigger an audit. But don’t leave yourself short by not claiming things that are perfectly legitimate to claim.
And… in case you didn’t catch that – if in doubt, get with a tax professional.
*Note that links to Amazon books listed above are affiliate links. You can learn more about affiliate links here.
The Delivery Driver’s Tax Information Series
- Introduction to the Delivery Driver’s Tax Information Series
- Your Taxes are Based on your Profits, not Revenue
- Understanding your Revenue: Money In
- Understanding your Expenses: Money Out
- Filling Out Your Taxes
- Preparing for next year: How much should I save?