Self-employed expenses: vehicles and home offices

What to track

For business mileage, useful records include trip dates, business purpose, destination, business miles, total miles, and odometer readings at the beginning and end of the year.

If the actual expense method is used, receipts, statements, and records for fuel, repairs, insurance, registration, lease, or other expenses may be needed.

Business and personal use

Business use of a vehicle must be separated from personal use. Not every trip related to work automatically qualifies as deductible business mileage.

For delivery, rideshare, contractors, truck drivers, and other self-employed situations, the activity and records for the year should be reviewed separately.

What is often missing

Common missing items include a mileage log, beginning and ending odometer readings, business purpose of trips, personal/business mileage split, and expense support.

Gas receipts alone do not always prove business use of the vehicle.

How to prepare

It is better to maintain a mileage log during the year, rather than rebuild it at tax time.

If records are missing, the situation should be discussed before filing to determine what can be supported.

Exclusive and regular use

In general, the space must be used regularly for business and, for many situations, exclusively for that purpose. A desk that is also routinely used for personal activities may not satisfy the standard exclusive-use test.

Separate rules and exceptions can apply, including certain storage and daycare uses. Describe how the space is actually used rather than simply stating that work was performed at home.

Simplified method

For qualified business use of a home, a taxpayer can choose the simplified method. The IRS uses a rate of $5 per square foot of qualified space, up to 300 square feet.

The simplified method reduces calculation and recordkeeping work, but it does not change the underlying eligibility requirements. The method is selected for a particular tax year.

Regular method and Form 8829

Under the regular method, actual expenses and the business percentage of the home are considered. For Schedule C, Form 8829 may be used to calculate the deduction.

Rent, mortgage interest, real estate taxes, utilities, insurance, repairs, and depreciation can matter. Not every cost is treated the same way, so source records are more useful than a rough total.

What to prepare

Measure the total home area and the business space. Prepare the date business use began, a description of how the space is used, and annual expenses if the regular method is being considered. Keep bills, statements, and records for improvements or repairs that may relate to the workspace.