What is mileage reimbursement?

For self-employed professionals, every mile traveled can represent both an expense and an opportunity. You can claim mileage reimbursement or a deduction from the Internal Revenue Service (IRS) for all business miles driven. 

Whether you're a freelance consultant meeting clients across town, a real estate agent scouting properties, or a gig economy worker shuttling passengers, the miles you rack up on your vehicle are more than just a journey—they're potential deductions and reimbursements that can significantly impact your business’ bottom line.

Navigating the complexities of mileage reimbursement as a self-employed individual can be daunting. Unlike traditional employees who often have mileage reimbursement policies set by their employers, self-employed professionals must establish their own reimbursement policy and understand how to leverage IRS tax laws to maximize their deductions and reimbursements.

From understanding which miles are deductible, what forms you need to file, and how to leverage technology for seamless tracking, we'll equip you with the knowledge and tools necessary to navigate this crucial aspect of self-employment with confidence.

What is mileage reimbursement?

Mileage reimbursement, also known as mileage deduction, allows self-employed individuals to deduct the cost of business-related driving from their taxable income. Each mile you drive for business can be deducted from your taxes at the end of the year. 

Typically, a reimbursement or deduction for mileage is calculated based on the number of miles driven for business purposes, using a predetermined rate per mile set by the IRS.

Mileage reimbursement serves as a means to fairly compensate individuals for the expenses incurred while using their personal vehicles for work-related activities, thereby helping to offset the financial burden of business-related travel. For self-employed people, these miles driven are considered one of many business expenses. 

Eligible miles:

• Client visits: Driving to meet clients or potential customers
• Business errands: Picking up supplies, going to the post office, or any other errand for your business
• Travel to a temporary workspace: Driving between one workplace and another or from home to a temporary workplace
• Business events: Travel to conferences, workshops, or any other business-related events

Non-eligible miles:

• Commute: Drive from home to your regular workplace and from your workplace back home
• Personal: Any miles incurred for non-business activities are not deductible

Key takeaways 

This guide dives deep into the requirements and technical details of receiving reimbursement for business miles. You can expect an understanding of:

• What mileage reimbursement is
• How self-employed people can deduct business-related miles driven from their taxable income
• How you can choose between the standard and actual mileage deduction
• Depending on how much you drive for business, mileage deduction or reimbursement can add up to significant savings
• The 2024 IRS mileage deduction is 67 cents per mile driven

Who is this guide for?

This guide focuses on mileage reimbursement policy for self-employed people.

Self-employed people who are eligible for mileage deduction are:

• Small business owners who report their income on Schedule C
• Freelancers
• Independent contractors
• Delivery and ride-share drivers (independent contractors)
• Real estate agents
• Truck drivers

In brief, we will cover mileage reimbursement for traditional employees, active duty military, and miles incurred for charitable organizations. 

Who is mileage reimbursement for, and why is it important?

Mileage reimbursement is for anyone who uses a vehicle for business purposes. It can be for employed and self-employed people. 

This guide primarily focuses on self-employed individuals and the requirements they must follow to receive mileage reimbursement or deduction from the IRS.

In addition to business mileage reimbursement payments, you can receive mileage reimbursement for some personal miles. Those include:

• Mileage related to medical appointments
• Miles driven while volunteering for a non-profit

IRS mileage reimbursement policy

The IRS mileage reimbursement policy is that self-employed people can deduct business-related miles driven from their taxable income. The IRS lays out two different methods for calculating how much you can deduct based on eligible miles driven. 

Federal mileage reimbursement guidelines

The IRS offers two different ways to calculate the amount of deduction you’re eligible for. You can choose between the standard and actual mileage rate deductions. 

How you use your car will determine which reimbursement method you’ll want to use. If you’re eligible for either method, you may want to calculate which will allow you to deduct more and choose that method.

The IRS updates the mileage rate each year. In 2024, the deduction rate for self-employed and business miles is 67 cents per mile driven. 

This rate is intended to take into account depreciation or wear and tear on the vehicle, the cost of gas, and the expense of regular maintenance.

Who’s eligible for mileage reimbursement?

If you are self-employed and sometimes use your vehicle for business purposes, you’re eligible for federal mileage reimbursement. 

There are a few stipulations on who is eligible:

• You must own or lease your vehicle
• You must be self-employed. This includes small business owners, delivery and ride-share drivers, independent contractors, sales representatives, real estate agents, and truck drivers
• Only business-related miles are eligible for mileage deduction. Personal travel and travel from home to work (your commute) are not eligible for deduction.

Those who are not eligible for business mileage reimbursement include:

• People who are not self-employed
• People who use more than four cars at the same time can’t use the standard deduction (If you have five employees, all of whom will be driving at 9 a.m. on Monday, then you’ll need to use the actual deduction method.)

Employees

An employer can offer mileage reimbursement to employees who drive as part of their job duties. If an employees uses their personal vehicles for business purposes, you can reimburse employees 67 cents per mile on the employee’s paycheck. 

To pay employees, it’s as simple as asking employees to track their mileage and then provide mileage reimbursement.

Charity, medical, and armed forces

In addition to the above mileage reimbursements, some people are eligible for reimbursement for medical or moving purposes. 

Members of the armed forces are eligible for reimbursement for expenses incurred while moving. This deduction is only for qualified active duty members. 

The mileage reimbursement rate for medical and moving purposes is 22 cents per mile driven.

Mileage reimbursement requirements: What’s covered and what’s not

In short, most miles driven for business use are eligible for reimbursement or deduction under federal law. There are a few exceptions to this rule.

In addition to receiving a reimbursement for business mileage, you can also deduct other vehicle-related expenses. This applies to people who choose the actual reimbursement rate. If you choose the standard rate deduction, that has built in the assumed cost of maintenance, gas, and vehicle depreciation to the deduction rate.

For example, if you use your car for a mix of business and personal and your business use is approximately 40 percent of all use, you can deduct 40 percent of your other vehicle-related expenses. This includes gas, car loan interest, and maintenance. You should maintain receipts for all vehicle expenses in case of an IRS audit.

Eligible miles:

• Client visits: Driving to meet clients or potential customers
• Business errands: Picking up supplies, going to the post office, or any other errand for business purposes
• Travel to temporary workspace: Driving between one workplace and another or from home to a temporary workplace
• Business events: Travel to conferences, workshops, or any other business-related events

Non-eligible miles:

Commute: Drive from home to your regular workplace and from your workplace back home

Personal: Any miles incurred for non-business activities are not deductible

Mileage deduction if you work from home

Many self-employed people choose to work from home. If you work from home, the deduction rules change slightly. Generally, mileage from your commute when driving from home to work is not deductible. This changes when your home is also your primary place of business.

If your home is the primary place where you work, you can deduct mileage when driving to and from home for business-related purposes. This is no longer considered a commute.

How much can you deduct from your taxes for mileage reimbursement?

The IRS has no upper limit. You can deduct as many business miles as possible; there’s no cap.

If you are deducting a high amount of miles, be sure to keep clear records as the IRS may want to review those records to ensure all claimed miles were actually eligible for a deduction.

How much, on average, do people claim on their taxes for mileage reimbursements?

The amount of IRS mileage deduction claimed varies greatly from person to person. There is no upper limit to how many miles you can claim for deduction or reimbursement.

A freelancer who primarily works from home and meets with clients virtually will have only a few business miles a year to deduct. On the other hand, an independent contractor who works as a ride-share or delivery driver could have thousands of eligible business miles to deduct in a year. Mileage reimbursement policy can offer a significant tax break for someone who drives a lot for work. 

Are there other vehicle-related deductions?

Yes.

But, you’re only eligible for other vehicle-related deductions if you choose the actual mileage deduction method. If you choose the standard deduction, your additional deductions are built in. As well, you must own or lease your vehicle to be eligible.

If you’re using the actual mileage reimbursement, you can deduct the actual costs of depreciation, lease payments, maintenance and repairs, gas, oil, insurance, and vehicle registration fees.

According to the IRS mileage reimbursement policy, if you’re using the actual reimbursement method, you can deduct the percentage of expenses of your car that’s equal to your use. 

You can also deduct the depreciation value of your car. To calculate depreciation, you’d use the Modified Accelerated Cost Recovery System (MACRS) method. This method is used to depreciate any car placed in service post-1986. This applies only to individuals who have always used the actual reimbursement method.

If you have used the standard mileage rate for deduction in previous years, then you must use a straight-line depreciation method to calculate your depreciation deduction.

You can also deduct the cost of parking fees and tolls. These costs are deductible, but won’t be calculated in the actual mileage reimbursement. Fees and tolls are a separate deduction. As well, the fee to park at your place of work is non-deductible.

How to calculate your IRS mileage deduction

If you’re self-employed and use your vehicle for business purposes at least some of the time, you’re eligible to deduct the mileage rates from your year-end taxes.

There are two ways to calculate the mileage tax deduction for self-employed people. 

1. Actual mileage reimbursement
2. Standard mileage reimbursement

Your eligibility for these deductions depends upon:

• If you’re self-employed
• If you use your vehicle for business purposes
• If you own or lease your car
• Which method you used the previous year

If you are eligible for both methods, it’s recommended that you calculate the deduction both ways to figure out which method will give you a larger deduction. 

Methods of mileage reimbursement calculation

There are two methods of reimbursement offered by the IRS to people who are self-employed and use their owned or leased vehicle for business purposes.

The two different ways to calculate your reimbursement are actual mileage reimbursement and standard mileage reimbursement.

Standard mileage reimbursement rate

The IRS standard mileage rate is a set rate that’s defined each year by the IRS. Self-employed people receive a mileage deduction of a set number of cents per business mile driven. 

The standard mileage reimbursement rate accounts for the depreciation and maintenance costs of operating your vehicle in the calculation. This means that those additional expenses are no longer deductible.

The standard mileage reimbursement rate in 2024 is 67 cents per mile driven.

Self-employed people who use their vehicle for some business-related purposes will receive a deduction of 67 cents for every mile they drive for business on their year-end taxes.

The standard IRS mileage rate is for self-employed people who own or lease their vehicles. Generally, this deduction is chosen by those who use their vehicle sporadically for business. 

If you meet the below criteria, you cannot use the standard rate mileage reimbursement:

• Operate five or more cars at the same time
• Have claimed a depreciation deduction other than straight-line
• Have claimed a Section 179 deduction on your car 
• Have claimed actual expenses in previous years

An important note: If you’re planning to use the optional standard mileage rate deduction, you must opt for this from the first year your car is used for business. If you lease your vehicle, you must use the standard mile rate reimbursement for the entire lease period, including renewals.

You cannot choose the actual expenses option and then switch to the standard option the next year. Though, the reverse is allowed. 

Actual expenses mileage reimbursement method

As an alternative to the standard, you can choose the actual expense mileage reimbursement rate.

The actual expense mileage reimbursement method allows you to deduct the actual cost of operating and owning the car. 

If you use your car solely for business purposes, this means you can receive tax deductions for expenses. If you use your car for a mix of personal and business use, then you can deduct a percentage of expenses proportional to your business use of the car. 

For example, if you drive your car for business 25 percent of the time, you can deduct 25 percent of all expenses. 

Expenses included for deduction in the actual expenses mileage reimbursement method:

• Lease payments or depreciation
• Gas
• Insurance
• Oil
• Maintenance
• Repairs
• Tires
• Registration fees
• Licenses
• Garage space rental fee
• Trailer rental cost (if hauling tools)

If you’ve used the actual expense method in previous years, you may not be able to switch to the standard mileage rate deduction. Using any of these three types of depreciation will disqualify you from switching:

• Section 179 deduction
• Depreciation deduction
• Special depreciation allowance

Tips to choose the right reimbursement method for you

Choosing the right IRS mileage reimbursement method might not be an obvious choice

Here are a few tips to help you decide which method is right for you and your business:

• Calculate your deduction using both methods. Choose the method that will offer a higher deduction.
• If your car is more costly to operate and maintain than average, consider the actual expense method.
• If you own a new or expensive car, the actual expense method is likely to offer a higher deduction for you.
• If you don’t drive often or much for business, the standard deduction requires keeping track of fewer receipts and takes less time to calculate.
• If you drive a fuel-efficient or hybrid vehicle with low maintenance cost, you may receive more in reimbursement from the standard deduction than the actual deduction.
• Ask for advice from a tax professional.

Switching between actual and standard mileage reimbursement

It’s very important to note that you may not be eligible to switch between the two types of mileage reimbursement, depending on which type of reimbursement you chose in the past. Which reimbursement you’re eligible for also depends upon whether you lease or own your vehicle.

If you own your vehicle

If you chose the actual expense method the first year it was available to you, then you will not be eligible to switch to using the standard mileage rate in any following year for that vehicle.

If you chose the standard mileage rate method in the first year, you may choose between the two methods in the following tax years.

If you think you might want to switch how you calculate mileage reimbursement in future years, be aware of which depreciation calculation you choose. This may disqualify you from the standard mileage rate method. 

If you choose any of these three depreciation calculations, you’re no longer eligible for the standard rate reimbursement method:

• Section 179 deduction
• Depreciation deduction
• Special depreciation allowance

If you lease your vehicle

If you want to use the standard rate mileage deduction for a leased car, you must do so throughout the entire lease period. This includes all lease extensions.

Requirements for IRS mileage rate reimbursement

There are several requirements for mileage reimbursement documentation. The IRS needs to see certain things in order to grant your deduction.

Mileage deduction documentation

According to the IRS, “the law requires that you substantiate your expenses by adequate records or by sufficient evidence to support your own statement.”

You might need different records depending on the reimbursement method you choose. The actual method requires more documentation as it allows you to deduct more business-related expenses.

Records you might need to keep:

• Receipts for all car maintenance
• Proof of purchase
• Proof of lease or ownership
• Log of miles driven 

What’s required on mileage reimbursement documentation logs?

A mileage reimbursement log tracks the miles you drive for your business. These records should be kept as they happen or soon after. The IRS considers the log to be timely if it’s updated at least weekly.

The log should include:

• Date
• Mileage
• Destination
• Purpose 

Your log should also include your mileage at the beginning and the end of the year to show your total mileage.

How to track mileage

There are a number of different methods you might use to track your mileage. Whichever method you choose, your records should be timely and accurate.

First, you must log your mileage at the beginning and end of the year. This shows the total mileage that was driven.

Next, you’ll want to keep a log of all personal trips and business mileage driven. You can keep your log in a notebook, a spreadsheet, or use a tracking app.

There are a number of apps on the market for tracking business miles. You can find standalone mile-tracking apps or use one that’s built into your accounting software. 

If you didn’t track your miles this year but want to deduct them, you may be able to go back through your timeline on your phone’s map app, which may automatically track your location. 

Receipts and records

If you’re using the actual method for mileage reimbursements, you will also need to keep receipts for all expenses related to your vehicle. You will be able to deduct all or a portion of those expenses on your year-end taxes.

Mileage reimbursement tax procedures

If you’re preparing your own taxes as a business, it’s important to know where to file for your mileage reimbursement.

Sole proprietors will deduct car expenses on Schedule C, Form 1040.

In addition to reimbursement for business mileage, you can also receive a deduction for other miles driven. You might claim a deduction for:

• Miles driven for charity: 14 cents per mile, 2024
• Miles driven for medical reasons: 22 cents per mile, 2024

Use reimbursement to your advantage

Understanding reimbursement policy is paramount for self-employed professionals seeking to optimize their finances and accurately account for the costs associated with business-related travel. 

With careful attention to detail and proactive planning, self-employed professionals can harness the benefits of mileage reimbursement to enhance their financial well-being and drive success in their entrepreneurial endeavors.

Mileage reimbursement FAQs

Is gas included in mileage reimbursement/tax deductions?

If you use the standard mileage rate for reimbursements or deductions, you cannot deduct expenses for gas. That being said, the cost of maintaining a vehicle (including gas) is built into the calculation for how the IRS sets the per-mile deduction.

In 2024, the per-mile deduction rate for self-employed professionals is 67 cents.

If you choose to use the actual rate, you can deduct the price of gas (among other expenses) used for business driving.

How does the IRS calculate mileage reimbursement?

The IRS calculates the rate for the standard mileage reimbursement by looking at the fixed and variable automobile operating costs.

The IRS reevaluates the standard mileage reimbursement rate each year and new rates are issued as the costs of maintaining and owning a vehicle rise or fall. 

The standard mileage deduction rate applies to gasoline and diesel-powered vehicles, as well as electric and hybrid vehicles.

What would I do if I didn’t track my mileage this year?

The IRS requires timely and accurate records to be kept in order to file for a mileage deduction. Timely is considered weekly.

If you forgot to track your mileage this year, you may be able to prove a claim with:

• A statement that includes specific information about the untracked miles
• Provide sufficient supporting evidence through other sources

If you regularly travel with your phone and have location tracking on, you may be able to recreate the business miles you drove through a map timeline. 

Can I deduct miles to and from work as an independent contractor?

You cannot deduct your commuting miles, which is defined as your drive from home to work and back. 

But, if your home is your primary workplace, you can deduct miles from your home (place of work) to temporary work sites, meetings, or other business-related purposes.