A person who is self-employed must follow certain rules when filing taxes regarding allowable deductions. The IRS has regulations in place that dictate when self-employment mileage can be used, allowable amounts and what to do if you don’t wish to use the standard allowance. The purpose of this allowance is to cover expenses related to maintaining and operating a vehicle that is necessary to the business.
Driving that is related to the operation of your business is deductible as an allowable expense. This includes the cost of deliveries, trips to interact with clients, business meetings and travel if you use your car rather than another form of transportation. Commuting from your home to your regular workplace is not deductible, though a commute from your home to a secondary or temporary workplace may be allowed.
There are some situations where you are not allowed to use the standard mileage allowance for your use of a vehicle, even if it is a legitimate self-employment business expense. Some of these exceptions are if you operate a taxi, a limousine or another car-for-hire service; if you are a mail carrier using your own vehicle for your job and you are compensated for that; or if you leased the car and claimed the actual car expenses. There are other exceptions that may also apply in certain special situations.
Standard Mileage Allowance
The standard mileage allowance rates vary each year, and sometimes even during the year, depending on the actual costs of such things as gasoline and oil. For the second half of 2011 the standard mileage rate for business travel is $0.555 cents per mile. You are allowed to count all business miles driven, so it is important to note the mileage for a round trip and not just one way. Total miles for the period are added up and then multiplied by the current mileage rate to determine the standard mileage allowance.
If you prefer not to use the standard mileage allowance, you can deduct your actual expenses instead. If you choose to do so, you need to keep a log of miles and expenses, including fuel, oil, insurance, repairs and any other costs incurred on the vehicle during the year. You will also need to keep receipts for all expenses, including gasoline, when you use this method. If the vehicle is driven for personal as well as business use you must deduct a portion of the expenses from the total, based on the amount of personal miles driven.
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