Working as a contractor can provide many personal benefits such as: greater independence, and an opportunity to deduct your business expenses when preparing your taxes. One of these opportunities includes the concept of mileage reimbursement, in case your mileage expenses accumulate while driving a vehicle as a contractor.
How to qualify for mileage reimbursement?
In order to deduct the accumulated expenses from driving a vehicle for business reasons, first, you’d most likely have to work as a contractor, not as an employee for a company. Employees on the other hand cannot simply deduct their driving expenses from home to work and vice versa.
Deduction vs. Refund
It’s important to keep in mind that there’s a vast difference between a deduction and a refund. While the Internal Revenue Service (IRS) doesn't provide a direct refund of all expenses incurred while contractors drive their vehicles for business purposes, the IRS does provide a system of deductions.
With this system, contractors deduct their expenses to reduce their taxable income as well as the taxes they owe. In order to reduce your taxable income, the IRS allows contractors to deduct a portion of your expenses per mile driven.
Standard Mileage Rates
Every year, the government sets the standard mileage rates that contractors can deduct, when the time comes to prepare taxes. For instance, for 2017, the IRS announced that for every mile driven for business reasons, 53.5 cents are deductible from your expenses. To be able to calculate how many dollars to deduct from your mileage expenses as a whole, simply multiply the number of miles driven times the number .535.
For example, if you claim to drive 15,000 miles for business reasons, this is how you would calculate your deductible expenses:
15,000 miles x .535 = $8,025
Your total expenses related to your deductible mileage are $ 8,025.
The standard mileage rates depend entirely on what the IRS decides, which can increase or decrease year after year. For instance, in 2015, the standard mileage rate per mile driven was 57.5 cents, which means contractors used to be able to claim a higher deductible compared to the current 53.5 cents for this year.
Mileage Reimbursement Requirements
For the miles traveled as a contractor to count exclusively for business reasons, Chron.com explains that contractors should travel from a home, office or job site, to another home, office or job site. Also, keep in mind that in order to qualify for reimbursement, just like in any tax preparation situation, maintaining records of the distances you travel as well as the starting points is very important.
A nice advantage for contractors is that the IRS had no restriction on the amount of miles traveled for business, which means your miles are deductible regardless of the number of miles traveled for business reasons. For more specific information, it’s recommended to speak with a tax preparer.
Be Ready to Show Proof
If you get audited by the IRS, it’ll be your responsibility to present proof that you really did travel the number of miles claimed on your taxes. Thanks to modern technology, keeping records of trips in your vehicle can be much easier. With mobile apps like TrackMyDrive and MileIQ, you can easily track and document each trip you make for work.
All in all, obtaining some kind of mileage reimbursement is totally possible for contractors and freelancers. Come tax time, you’ll be much more prepared when reporting your income. Make sure you have a team of reliable people at your service, when driving your vehicle, either for personal use or for work. Call an Infinity agent at 1-800-INFINITY or get an online quote today.