Tax Deduction vs Tax Credit
Quick definition
Deductions reduce taxable income. Credits reduce tax owed. Same dollar of credit is worth more.
A tax deduction reduces the amount of income that gets taxed. A tax credit reduces the amount of tax owed. A $1,000 deduction at a 22% bracket saves $220. A $1,000 credit saves $1,000.
Which is mileage
Mileage is a DEDUCTION, not a credit. A 15,000-mile, $10,875 deduction reduces taxable income by $10,875. The actual cash savings depends on your marginal tax bracket plus self-employment tax savings if you are self-employed.
Why the distinction matters
Marketing copy that says "deduct your mileage and save $10,875!" is misleading. The actual savings is more like $1,500-$3,500 for a typical driver in the 12-22% federal bracket plus self-employment tax. Still meaningful, but not the gross deduction figure.
How to estimate your real savings
Multiply the deduction by your combined marginal rate (federal + state income tax + 15.3% self-employment tax for self-employed). For a driver in the 22% federal bracket, 5% state, and self-employed: deduction × 42.3% = approximate cash savings.
Related terms
Self-Employment Tax
The 15.3% tax on net self-employment income that funds Social Security and Medicare.
Schedule C
The federal form self-employed workers use to report business income and expenses, including the mileage deduction.
Standard Mileage Rate
The IRS-published per-mile deduction amount. 72.5 cents per business mile for 2026.
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