Is the mileage tax deduction worth it?

Let me first say this is not a post about How to track mileage. You can find that all over the internet; Here, Here, and Here.  This post idea came from a conversation I had with a client in which the comment was made, "Is this [mileage] even worth tracking?"  What an excellent question!

Being a RTRP (registered tax return preparer) in addition to a financial advisor, I often have to explain mileage tracking, the home office deduction, and various other deductions that are available to taxpayers. But the question right after that needs to be, "Should I do it?"

The mileage deduction is one of those things that people love to use on their tax return but rarely keep the records required by the IRS. I personally have tried the log book method as well as using a phone app, both to no avail. The time it takes to track everything the correct way is too much (and easy to forget) compared to the value I would receive on my taxes.  So let's take a look at why.

Let's start with the Benefits. The IRS mileage rates for 2014 are listed below:

  • Business Mileage: $0.56 per mile
  • Medical or Moving Mileage: $0.235 per mile
  • Charitable Mileage: $0.14 per mile

To estimate your benefit simply multiply your mileage by the respective rate above. For example, I know that I volunteer once a month at a food shelf that is 10 miles away.  Therefore I estimate my charitable mileage will be about 120 miles for the year. So that comes out to a tax deduction of $16.80. Great! But wait, this is not the actual dollar value to me, it represents only the deduction on my taxes. If my marginal tax rate is 25% then the value of your tax deduction is only $4.20. So is it worth tracking?  Well that is up to you. The IRS says you have to keep support in order to take any deduction. In my example, driving to a location 10 times and writing it down is not that hard and I may as well take what I can get. Ok, but what if you donate time to a second charity? Or what if you drive to a different location every time? Well, you get the picture - $4.20 doesn't amount to much if it takes you an a couple hours to track it all. At least correctly in the eyes of the IRS.

Business mileage might be a little better because of the higher deduction rate and you have to drive to your job every day, right? To clarify, you cannot deduct commuting mileage so for the average 8-5 office worker it's probably not worth it either. Commuting mileage is the first trip to and the last trip from your main office each day. The same goes for other commuting costs such as bus passes or other transit. Also, if you are reimbursed by your employer you don't get to count that mileage either. Use your marginal tax rates (as in the example above) to determine the actual $ benefit to you. Unless you are driving hundreds if not thousands of miles each year for business (not commuting) the deduction might not be worth it. If you still don't believe me just try keeping a log book for a year. After a couple months you'll know what I mean.

What other tax deductions aren't worth the hassle? Comment below.