For those of us using our cars for delivery for Doordash, Postmates, Uber Eats, Grubhub and others, your car expenses are usually the largest expense item on your taxes. It costs a lot to operate your car. Every mile is expensive. I mean that about taxes as well as real life.
In fact, the way tax law works, using your car is kind of a bonus thing. For most cases you can legally claim much more in expenses than your actual expenses. In other words, your actual profit is higher than your taxable profit. That’s always a good thing.
You have to choose: Actual expense or standard mileage rate.
You can add up the actual cost of your car and claim your deduction based on that. Or you can take a flat mileage deduction. You can choose which one works better (although once you do choose, you kind of lock yourself into that method for following years).
We’ll get into more detail later about what expenses you would include if you use the actual cost method. There’s a well defined list of things that the tax code says are part of the cost of the car. You have to track all of those, keep all your gas receipts, keep all your records. And then you get into some complicated stuff around depreciation. All of that adds up to what your actual car costs were for the year. And then you claim the business percentage of that. For example, if you drove your car 10,000 miles for the year and 6,000 of those miles were for business, 60% is your business percent. That means you can claim 60% of the actual cost of the car.
To make things simpler (and to reduce paperwork for them) the government started allowing you to claim a fixed rate per mile that you drive for business. In 2019, every business mile you drove can be deducted at 58¢. For 2020 it will be 57.5¢ per mile. In the example above with the 6,000 business miles (2019 rate), you could claim $3,480.
But here’s the deal: It’s either or. You cannot claim both. If you claim miles, you can not also claim gas, oil, maintenance or any of the other things on the IRS list. There ARE some things you might be able to claim, we’ll cover those later.
The MOST Important Rule for Claiming Miles:
You HAVE to track your miles. You have to have a record. That’s true whether you claim actual expense OR claim the mileage deduction. The reason for tracking them for the mileage deduction is obvious. Why do you need to track them if you claim actual expense? If you are claiming actual expense, you can only claim the business percentage of your car’s use. You can’t know the business percentage if you didn’t track the miles. The IRS would disallow deductions using either method if you didn’t rack your miles.
Track. Your. Miles.
Which is better: Standard Mileage Deduction or Actual Expense?
It depends. Which is going to save you more in taxes?
Usually, the standard mileage rate is going to add up to higher. If your car is more valuable, the actual expense method could be higher. You just have to run the numbers both ways and decide which works better for you. That’s why I recommend that you track both actual expenses AND miles. The higher the number of miles you drive, the more likely the per-mile rate is going to work better for you.
Going into more detail on the car deduction.
Coming up, we’ve got several articles related to your car:
- Which miles should you track?
- What is the best way to track your miles?
- What if you forgot to track your miles?
- How do you calculate the actual expenses?
- Car expenses you can claim even when taking the mileage deduction.
That seems like a lot. I could probably try to fit it into one article. But I think there are just enough questions about each topic that each article probably could stand on its own. The thing is, for most of us, the car is such a big part of our expenses and such a crucial part of keeping our taxes down, it’s important to understand that particular deduction.
If I want to get a 10,000 foot look at my profitability, I don’t dig into all the other expenses. They are miniscule compared to the vehicle expense. All I do is calculate the 58 cents per mile for my car. In 2019 I drove 20,000 business miles. That’s low compared to a lot of drivers, and yet at $0.58 per mile, it still adds up to a LOT.
Understand how to capture that vehicle expense.
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?