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If I were to fill up gas for Postmates does the actual expense method mean whatever I paid for gas, that exact money will be returned back to me when filing for taxes? If I do this method could I also get back my auto-insurance money?

I know that you could write off about 58 cents a mile but what happens if I do the former method? Also how would I prove to the IRS that I'm being truthful for both methods?

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  • Whichever type of expensing you select (and justify) is deducted from your income (along with other deductions) and then tax is computed. This means e.g. $100 of expense does not 'get back' $100, it reduces tax at your marginal rate, for selfemployed typically about 33% or 35% ($33 or $35 per $100) (22% or 24% income tax, applied after 20% QBI, plus 15.3% SECA). This is unlike a credit which does reduce your tax dollar for dollar. Jul 26 '20 at 5:25
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Also how would I prove to the IRS that I'm being truthful for both methods?

The key to claiming anything on your tax form is documentation. If you have a receipt you have to keep it. So when you buy gas, or pay for parking or pay a toll you have to have a receipt. When you pay for your auto insurance you have to keep the receipt.

For some things like tolls that may mean that you download the transaction list each month, and then document which ones were for your business and which ones weren't.

The receipts you will have to keep for several years after you file your taxes. This is to make sure you can prove it during an audit.

For things like mileage you will have to keep a hand or digital log. If they want you to prove it the log will be your evidence. You can't just guess.

I know that you could write off about 58 cents a mile but what happens if I do the former method?

According to the IRS For 2020 it is 57.5 cents a mile, for 2019 it was 58 cents a mile.

Under either method you need to document in your log the number of miles you drive for business each day. Be careful you aren't claiming commuting miles.

If using the standard rate you then multiple the rate times the miles, and you are done. In addition you can claim business parking and tolls, as long as they are not personal or commuting expenses.

You need to review IRS tax topic 510

Actual Expenses - To use the actual expense method, you must determine what it actually costs to operate the car for the portion of the overall use of the car that's business use. Include gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation (or lease payments) attributable to the portion of the total miles driven that are business miles.

Note: Other car expenses for parking fees and tolls attributable to business use are separately deductible, whether you use the standard mileage rate or actual expenses.

Actual expenses involve you keeping track of your business miles in a log, and then figuring the proportion of the total miles driven. That means you have to know all the miles that are not business related. So if your business miles are 30% of your total miles, then you can claim 30% of your total allowable auto expenses.

You then take all your receipts that are considered auto expenses and you add them up. This is where you get your totals for gas, and your repairs, and tires, and auto insurance.

A key item is the expense of the vehicle. It depends on is it a lease, or a rental, or do you own it. In most cases the depreciation of the vehicle has to be calculated. Depreciation doesn't match loan payment.

Generally, the Modified Accelerated Cost Recovery System (MACRS) is the only depreciation method that can be used by car owners to depreciate any car placed in service after 1986. However, if you used the standard mileage rate in the year you place the car in service and change to the actual expense method in a later year and before your car is fully depreciated, you must use straight-line depreciation over the estimated remaining useful life of the car.

Because you are using actual expenses, that means that you need to note which vehicle you are driving. That means that if you are married, have three teenage drivers and 4 vehicles, you need to know the expenses and miles for each vehicle. If one person and 2 vehicles are involved, you will have to determine what counts as an insurance expense.

My gut feeling is that most people just use the standard rate. Also the IRS doesn't generally allow you to switch methods from year to year.

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  • Also, if you have an inexpensive used vehicle that gets reasonable mileage, you will come out WAY ahead of actual expenses.
    – jamesqf
    Jul 24 '20 at 23:35

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