When you freelance — be it a self-employed writer, photographer, designer, etc. — you often need to meet with clients or sources face to face. Driving around, especially in rural areas, can really add miles to your personal vehicle. It’s important to understand keeping track of your miles as a freelance worker can help when it comes time to pay your taxes.
There are a couple of ways to keep track of miles you’re putting on a personal vehicle, ranging from defining what counts as business miles, to some suggested mileage tracking apps.
1. Understand ‘ordinary and necessary’ business expenses.
Mileage is considered an “ordinary and necessary” business expense according to IRS Publication 535, which explains common expenses, what’s deductible and what is not.
Put simply under a car and truck section, “The costs of operating a car, truck, or other vehicle in your business are deductible.” The standard mileage rate for 2017 was 53.5 cents per mile, and for 2018 preparations, that’s bumping up to 54.5 cents per mile.
But the trick is, using a car exclusively in your business means you can deduct car expenses. However, if you use a personal car for both business and personal purposes (most of us), “you must divide your expenses based on actual mileage.”
2. Choose the Standard Mileage or Actual Expenses method.
In figuring out the costs or miles put on your car for business use come tax time, you can use either the Standard Mileage method or Actual Expenses method. Standard Mileage is a simpler method, where you just calculate the number of miles, while Actual Expenses mean you carefully remove deductions associated with your actual self-employed work.
Make it habit to know the mileage of your car from the start of the year. That’s right, brush the confetti out of your hair and head out to the garage to check the odometer on New Year’s Day. This is a method of deducting the number of miles you’ve put on your personal vehicle using the Standard Mileage method and often asked for by tax filing software.
3. Keep a running spreadsheet.
Every trip you take on behalf of your business — ranging from heading to the fabric store for supplies to attending a crucial business conference — should be added to an electronic mileage log (and preferably kept on a cloud source for backup purposes).
Create a Google Sheet, save an Excel worksheet or something similar to Dropbox. Be sure to log the miles from your trip, the date and the reason (i.e. restaurant opening story, picking up supplies).
4. Use a tax app.
Many tax apps are designed with freelancers in mind, and especially if they’re for keeping track of business mileage. While there are a number of good tax apps out there, a couple tax and non-tax apps alike keep track of mileage, including Shoeboxed and Expensify. You can also just cut straight to mileage tracking with apps like MileIQ and Hurdlr.
Your vehicle can be an important part of the equation. Make sure you are properly covered – have a conversation with your Farm Bureau agent about the right coverage for your mileage and use.
Neither the Company nor its agents give tax, accounting or legal advice. Consult your professional adviser in these areas.