The standard mileage rate is simpler and the actual expense method is often larger for costly vehicles. Both require a contemporaneous mileage log. The choice in the first year a vehicle is used for business constrains what you can switch to later, so it is worth deciding deliberately.
This is presented as a calculation and it is really a records question. Whichever method you choose, you need to substantiate business use, and that means a log.
What each method covers
The standard mileage rate is a single per-mile figure intended to cover fuel, maintenance, insurance, depreciation and the rest. You track miles and multiply.
The actual expense method totals what the vehicle genuinely cost — fuel, insurance, repairs, registration, depreciation or lease payments — and deducts the business-use percentage of it. That percentage comes from the same mileage log.
Where each tends to win
Mileage generally suits a modest vehicle driven a lot for business. Actual expenses generally suit an expensive vehicle driven less, where real costs per mile are high.
Generally, because the answer depends on the vehicle, the miles and the year. With a proper log your CPA can compute both and take the better one, which is the strongest argument for keeping the log regardless.
The constraint people miss
The method chosen in the first year a vehicle is used for business affects what you can do in later years, particularly once depreciation has been claimed under the actual method.
That makes the first year worth a conversation. Choosing casually and discovering the constraint in year three is the version that costs money.
What is not business mileage
Commuting between home and a regular place of work, no matter what you think about during it. Personal errands folded into a business trip. Trips you cannot evidence.
A home office that qualifies can change the commuting analysis, which is one of the quieter reasons the two questions get asked together.
Keeping the log
Contemporaneous beats reconstructed by a wide margin. A phone app that records trips and lets you classify them takes seconds a day and produces exactly what is required.
Reconstructing a year from a calendar is possible, weaker, and unpleasant. Nobody who has done it once does it twice.
Leased vehicles behave differently
Leases have their own treatment under the actual expense method, including an income inclusion adjustment on more expensive vehicles that reduces the deduction. It is not a reason to avoid leasing; it is a reason not to assume the arithmetic matches a purchase.
If you lease and drive a lot, run both methods before committing in the first year.
Multiple vehicles
Each vehicle is evaluated separately, and you can use different methods for different vehicles subject to the first-year rules. A partner’s car used occasionally and a van used daily rarely belong on the same method.
Keep separate logs. A combined log makes the per-vehicle percentage impossible to establish, which is the number both methods depend on.
What to hand your CPA
Total miles for the year, business miles, the log itself, and — if there is any chance actual expenses win — the year’s fuel, insurance, repair and registration totals plus the purchase or lease details.
Supplying both sets costs you very little and lets the better method be chosen on facts rather than on a guess made in January.
Common questions
- Which is better, mileage or actual expenses?
- Mileage suits high-mileage, inexpensive vehicles; actual expenses often suit costly ones driven less. Your CPA can run both from the same records if you keep them.
- Do I need a mileage log either way?
- Yes. Both methods require business use to be substantiated, and a log kept as you drive is far stronger than one reconstructed later.
- Can I switch methods?
- The first-year choice constrains later switching, particularly where depreciation was claimed. Ask before choosing rather than after.
- Is commuting deductible?
- No. Travel between home and a regular workplace is commuting, not business mileage, regardless of what you do during the drive.
- What does a valid log contain?
- Date, starting and ending odometer or trip distance, destination and business purpose. Apps do this well; memory does not.
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