Let me start by saying this: Never take advice from forums like you see in Facebook groups. Just…. don't do it. There's a lot of bad information out there.
Sometimes the bad information will get you in trouble. You believe it and claim things you're not allowed to claim.
Sometimes bad information will cost you money. You believe it and don't track or claim business expenses that are legitimate, and you pay more taxes than you should.
In the latter category, you might be surprised to find out there are some car related expenses that you can claim even when you are using the standard mileage deduction.
I'm not talking loopholes or tricks. Those fall into the ‘get you in trouble' category. These are legitimate allowable business expenses.
Ahead in this article
We'll talk about two common myths drivers believe about claiming the standard mileage deduction on their schedule C.
We'll look briefly at how the standard mileage deduction works and what it covers.
Then we'll get into three car related expenses you can still claim when you are taking the standard mileage deduction.
Two common myths about claiming the standard mileage expense as an independent contractor.
Every day, delivery drivers for Doordash, Grubhub, Postmates, Uber Eats, Instacart and others are asking questions about taxes in Facebook groups and Reddit forums about their taxes.
And every day people are putting out these two myths. Both are wrong. Both are bad information that either get you in trouble or cost you money.
Myth number 1: You can claim both your miles AND your gas, maintenance, insurance.
Don't do it. Don't believe this one. It's either or.
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.
We'll explain a little more in a bit, but you can also read more about how the IRS allows you to choose either the standard mileage deduction, or the actual expenses. Not both.
Myth Number 2: If you claim the mileage deduction, you cannot claim any other expenses.
This one goes too far in the opposite direction from the first one.
Some folks mistake the either/or part of claiming miles and care expenses as meaning miles and all 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 so many different interpretations.
Not to mention a lot of bad information on Facebook and Reddit and other places.
If you understand how the mileage deduction works and why it was put into place, it makes more sense. The bottom line for your bottom line is you can claim your non car expenses.
Understanding the mileage deduction
If you totally understand the mileage deduction, it helps understand the differences.
This is about simplifying things for you and for the IRS.
There are some areas where the IRS lets you simplify the book keeping. Instead of listing and tracking several items, they let you simplify it with a lump sum or flat rate.
The IRS lets you take a standard decution instead of itemizing them on your personal taxes. Self employed businesses can claim a simple per-foot home office deduction instead of all the tracking and calculating of home related expenses.
The standard mileage deduction was another means of simplifying.
In this spirit, they introduced the standard mileage allowance. It makes it easier to track and report the vehicle portion of your expenses.
Instead of recording every gas purchase and every oil change and every other little thing, you can claim a flat per-mile deduction. For 2020, you can claim 57.5 cents per mile.
This makes it easier for us, and it simplifies the reporting. You have to track your miles either way to document what portion of your miles are for your business.
The IRS determined the things that are part of normal operation of your car.
Very simply, the IRS put a list of items out that are part of tracking your actual vehicle expense. These are the things that are part of your normal cost of operating a car.
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. Here's a screenshot of the list.
The idea here is you REPLACE the business portion of the listed car expenses with the standard mileage deduction.
This is why the myths above are myths
The purpose of the mileage deduction was not to ADD a deduction. It was to simplify.
You get to choose. EITHER actual expenses OR the mileage deduction.
The other important thing to remember is this: The purpose of the mileage deduction is to simplify THE CAR EXPENSE part of your taxes. It's not meant to rule out all other expenses.
Expenses that are not part of the normal operation of your vehicle are claimable. You can claim your business phone and data costs, equipment and supplies and all other direct business expenses.
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 even between the mileage deduction and all car-related expenses.
The distinction is between miles and the normal cost of operating your car.
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:
Surprise Deduction #1: 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.”
But why is parking listed in the ‘actual cost' items?
The IRS clarifies 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 the personal use of your vehicle are considered a part of operating your car.
However, costs directly related to your business are separate, and can be claimed even when taking mileage.
With most expenses related to using your car, you have to prorate them based on what percent of your miles were business related.
However, when claiming parking and tolls that are directly related to your business, you can claim 100%. You DO NOT NEED TO PRORATE THESE.
If you do claim these, it's wise to make a note in your mileage log when you had these expenses. That helps document that these were business related and not part of personal use.
Surprise Deduction #2: 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.
You cannot claim the principle. Only the interest. The principle is treated the same as if you paid directly for the car. Both are related to depreciation and are part of the normal operation of your car.
Interest, however, is not a normal part of operating your car. If you choose to pay cash for your vehicle, you don't have interest costs.
When you have to take a loan to operate your business, the interest related to that loan is a claimable expense.
What that means is that you will claim the interest part of your car in line 16-b on your Schedule C, not in the vehicle expense section.
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.John White in his “Tax Guide for Rideshare and Delivery Contract Drivers*”
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.J.K. Lasser's Guide to Self Employment (2nd Edition)*
*Links to Amazon products are affiliate links and I may receive a commission.
Surprise Deduction #3: 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.
This is a prorated deduction. If for example 80% of your miles were for business, you can claim 80% of your property tax. If you had $400 in property taxes on your car, 80% of that would be $320.
Be careful not to claim this twice. If you itemize, you can claim property taxes there. If you do so, make sure you only claim the portion that you didn't claim for your business expense.
Using our $400 in property taxes example. If you claim 80% as a business expense, you could only claim the remaining 20% or $80 on your itemized deductions.
Why not keep it simple and just claim it all in the itemized portion? It has to do with your self employment tax. As a business expense, it reduces your business profit, which reduces your self employment tax.
Always verify with a tax professional
Like I said to begin with, there's a lot of bad information out there. Never take something as fact, especially on taxes, just because you read it on the internet.
Verify. When you get information like this, always check the sources, check out the explanations.
Most important, verify it with a tax pro that understands taxes for the self employed.
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 is: Don't go for tax hacks or loopholes. That's not what this is about. I'm actually very conservative about the things I'll claim as expenses.
At the same time, don't leave yourself short, paying more in taxes because you didn't claim legitimate business expensed, which are ordinary and necessary parts of running your business.
And… in case you didn't catch that – if in doubt, get with a tax professional.
Tax Guide: Understanding Your Income
The following three articles help you understand what your real income is as an independent contractor.
Tax Guide: Understanding Your Expenses
The following eight articles help you understand the expenses you can claim on your Schedule C. Most of these are about your car, your biggest expense.
Filling Out Your Tax Forms
Once you understand your income and expenses, what do you do with them? Where does all this information go when you start filling out your taxes?