Mileage, Phone and Internet: Deducting Mixed-Use Costs Properly

Most eBay sellers run their business on the same phone they use to text family, on the same home internet connection the household streams video over, and in the same car that does the school run. None of those costs are purely business, and none are purely personal. That is where sellers go wrong in both directions: some deduct the whole phone bill and carry a risk they have not priced in, and others deduct nothing because they cannot tell where the line sits.

This guide covers the 2026 IRS mileage rates, commuting versus business trips, a mileage log that holds up, the business share of a phone and internet bill, the home office rules, and record retention. It is written for US sellers filing a federal Schedule C as a sole proprietor or single-member LLC.

1. The rule underneath everything: business share only

Before the numbers, the principle that drives every answer in this guide. A business expense has to be ordinary and necessary. IRS Publication 334 (Tax Guide for Small Business) defines an ordinary expense as one that is common and accepted in your field of business, and a necessary expense as one that is helpful and appropriate for your business. An expense does not have to be indispensable to be necessary. A phone that you use to answer buyer questions, check supplier stock and handle a courier problem passes that test easily.

The second half of the rule is the one that matters for this guide. The same chapter of Publication 334 warns that when an expense is partly business and partly personal, you should separate the two parts, and the personal part is generally not deductible. That one sentence is the reason you cannot write off a whole phone bill that your teenager also uses, and the reason you can legitimately write off a slice of it.

So every mixed-use cost needs three things from you:

1. A reasonable business share, expressed as a percentage or a mileage figure.
2. A way to show how you got that share, using records made at the time or reliable evidence.
3. The discipline to deduct that share only, and to deduct it once. The same dollar cannot sit in a home office deduction and also in a utilities line.

The usual error is not deducting something plainly personal. It is deducting a round number nobody can reconstruct. "Seventy percent of my phone" is not wrong in itself, but if you cannot say what it was based on, you have nothing to point to if the return is questioned.

Your margin is what you are protecting: see pricing eBay listings for profit for why an honest cost base matters.

2. The IRS mileage rates for 2026 and 2025

The standard mileage rate is a cents-per-mile amount set by the IRS that stands in for the cost of running your car for business. When you use it, you do not add up fuel, oil, repairs, insurance and depreciation. You multiply business miles by the rate.

The IRS standard mileage rates page (checked in October 2026) lists the following business rates:

The practical point for 2026 is that you will have two business rates in one year, and the rate depends on the date of the trip, not the date you file. A trip on June 29 is at 72.5 cents. A trip on July 1 is at 76 cents. If your log only records monthly totals you will not be able to split them properly, so log each trip with its date.

The rate is announced by the IRS and can change, as it did in 2026, so read the current figure on the IRS page rather than relying on a number you remember.

A worked example for 2026, using made-up mileage (illustrative only):

• January to June: 600 business miles at 72.5 cents is 600 x 0.725 = $435.00.
• July to December: 500 business miles at 76 cents is 500 x 0.76 = $380.00.
• Mileage total: $435.00 + $380.00 = $815.00.
• Add business parking fees and tolls of $30.00 (illustrative), which are deductible on top of the rate: $845.00 entered on Schedule C, line 9.

The Schedule C instructions say that with the standard rate you add parking fees and tolls to the mileage amount, enter the total on line 9, and do not deduct depreciation, lease payments or actual operating expenses.

Worth remembering: the rate is for the whole cost of running the car for business. It already includes fuel, insurance, repairs and wear. If you take the standard rate you cannot also deduct your gas receipts for the same car in the same year.

3. Which trips count, and which are commuting

Many dropshippers have no shop and no regular place of work outside the home, which changes which drives count.

What the IRS counts as local business transportation

Publication 334 lists local transportation expenses as the ordinary and necessary costs of getting from one workplace to another within the area of your tax home, visiting clients or customers, going to a business meeting away from your regular workplace, and getting from your home to a temporary workplace when you have one or more regular places of work.

What is never deductible: commuting

Publication 334 says you cannot deduct the cost of driving between your home and your main or regular workplace; those are personal commuting expenses. Publication 463 adds that this holds regardless of distance, and that making business calls, working during the trip, or carrying tools or business passengers does not turn commuting into a deductible trip. Publication 334 adds that parking fees at your place of work are nondeductible commuting costs.

If your home is your principal place of business

Publication 463 says that if your home is your principal place of business, you can deduct the cost of travel between your home and other work locations in the same trade or business. Publication 334 gives an example of a graphic designer who works from a home that qualifies as the principal place of business and drives to clients. The Schedule C instructions for Part IV make the same point: travel is not commuting if your home is your principal place of business under section 280A(c)(1)(A) and the trip is to another work location in the same business, whether that location is regular or temporary and regardless of distance.

For an eBay seller this can matter in an ordinary way. If you work from a home office that meets the tests in section 8, a drive to the post office to send a return, to buy packaging, or to a supplier's trade counter is a trip between your home and another place where you carry out your business. That is the IRS rule applied to a seller; the IRS does not list these trips by name. If your home does not qualify as a principal place of business, driving from home to a place of business could look like commuting, so ask a preparer if your situation is not clear.

4. Standard rate or actual expenses

You have two ways to deduct a car used in your business, and the rules about switching are strict enough to catch people out.

The standard mileage rate: eligibility rules

Publication 334, Publication 463 and the IRS Topic 510 page agree on these points:

• For a car you own, you must choose the standard rate in the first year the car is available for use in your business. In later years you can choose either the standard rate or actual expenses.
• For a leased car, if you choose the standard rate you must use it for the entire lease period, including renewals.
• You cannot use the standard rate if you operate five or more cars at the same time, have claimed depreciation by a method other than straight line (such as MACRS), claimed a section 179 deduction on the car, claimed the special depreciation allowance on it, or claimed actual car expenses for a car you leased.
• Parking fees and tolls are deductible separately under either method.

Publication 463 adds that you make the choice to use the standard rate by the due date of the return, including extensions, and that you cannot revoke that choice; in later years you can still switch from the standard rate to actual expenses.

Actual expenses

If you use actual expenses, you divide your costs between business and personal use by the share of miles driven for business. Publication 334 lists depreciation, lease payments, registration, garage rent, licenses, repairs and the other costs of operating the vehicle. Topic 510 adds gas, oil, tires and insurance. The business-use percentage is business miles divided by total miles driven for all purposes, per Publication 463.

Publication 334 gives a worked case: 7,000 business miles out of 10,000 total is 70 percent business use. With $280 of license, registration and personal property tax, 70 percent is $196.

Publication 463 also says you must use the car more than 50 percent for qualified business use to claim MACRS depreciation.

A comparison with illustrative numbers

Say you drove a total of 11,000 miles in 2026, 1,100 of them for business (600 before July 1 and 500 after). That is 1,100 / 11,000 = 10 percent business use. Say your running costs for the year were $4,800 and you are ignoring depreciation to keep the comparison simple (illustrative figures only).

• Standard rate: $815.00 from section 2, plus parking and tolls.
• Actual expenses: 10 percent x $4,800 = $480.00, plus parking and tolls, plus any depreciation allowed.

Here the standard rate gives the larger deduction with far less paperwork. Publication 334 says that if you qualify for both methods you should figure the deduction both ways.

5. The mileage log that actually holds up

The IRS does not accept an approximate deduction for car costs. Publication 463 states that you cannot deduct amounts that you approximate or estimate. What it accepts is an adequate record, usually a written account book, diary, log, statement of expense or trip sheet. A computer-prepared record counts.

What the record must contain

Table 5-1 in Publication 463 lists, for car expenses: the cost of the car and any improvements, the date you began using the car for business, the mileage for each business trip, the total miles driven during the year, and the date of each use, your business destination and the business purpose. In plain terms, for each business trip write down:

1. The date.
2. Where you went.
3. Why (the business purpose, for example "ship customer return, post office").
4. The miles driven, or the odometer readings at the start and end.

Separately, once a year, note your odometer at the start and the end of the tax year so total annual miles can be shown.

Timeliness

Publication 463 says to record each element at or near the time of the use. A weekly log that accounts for the week's use counts as timely. A record built later from memory is less reliable.

The sampling rule

You do not necessarily have to log every day of the year. Publication 463 says you can keep records for part of the year and use them to support the business-use percentage for the full year, but only if other evidence shows the sampled periods are representative of the whole year. Its example uses the first week of each month, supported by invoices showing the same business pattern continued. The publication does not set a minimum sample length, so do not rely on a figure you may have seen elsewhere.

If your records are incomplete

Publication 463 says you then need your own detailed statement plus other supporting evidence for each element; for business purpose, circumstantial evidence such as delivery invoices can be enough.

6. Your phone: deducting the business share

A phone is a classic mixed-use cost, because it is both the device and the line.

What the IRS publications say

Here we have to be careful about what is and is not published. The IRS publications we reviewed do not set out a particular percentage method or safe harbor for splitting a cell phone plan used for both business and personal calls. What they do set out is the general rule from section 1: the business share is deductible and the personal share is not. They also set out a specific rule for a home landline: Publication 587, and the Schedule C instructions for line 25, say the basic local service charge, including taxes, for the first telephone line into your home is a nondeductible personal expense, even if you have a home office. Charges for business long-distance calls on that line, and a second line used only for business, are deductible.

Those rules are written for home landline service. They do not say how a cell plan should be treated, and we will not claim they do. The general mixed-use rule applies to a cell phone used for both purposes.

A practical way to set the business share

This part is our practical suggestion, not an IRS procedure. A defensible business percentage is one built from evidence:

• Pull a few recent months of call and data records or screen time totals and sort the activity into business and personal. Calls and messages with buyers, couriers and suppliers are business. Calls with family are not.
• Note the apps that are purely for the business (seller app, supplier portals, the courier tracking apps) and how much of your total screen time they account for.
• Write one short note that states the method and the result, for example "Reviewed March, June and September 2026 usage; business was about 30 percent of calls and data." Keep the underlying screenshots or statements with it.
• Repeat the check at least once a year, and again if the business grows enough to change the picture.

The cleanest approach, again as a practical point, is a separate line used only for business: the home-landline rules expressly allow a second line used exclusively for business, and a dedicated business line leaves little to explain. If you keep one device for both, do the work above. Publication 463's sampling rule is written for cars, so treat it only as a guide to what a reasonable method looks like.

A worked example (illustrative)

• Phone plan: $85.00 per month, 12 months = $1,020.00 for the year.
• Documented business share: 30 percent.
• Deduction for service: $1,020.00 x 0.30 = $306.00.
• Personal share, not deducted: $1,020.00 - $306.00 = $714.00.

The Schedule C instructions say line 25 is for utility expenses for your trade or business. If you are unsure which line suits a phone plan, ask your preparer.

The handset itself

A handset is tangible property. Publication 334 describes a de minimis safe harbor election that lets you deduct amounts paid for tangible property up to $2,500 per item or invoice if you have no applicable financial statement, if you deduct them that way in your books, reported as other expenses in Part V of Schedule C. If the handset is also used personally, the business-share rule still applies; ask a preparer how the two interact, as the pages we reviewed do not cover that combination.

7. Home internet: the gray area

Internet is where sellers most often assume more clarity than exists, so here is what is firmly stated and what is not.

What is stated

Publication 535, now discontinued by the IRS (the finding page says the last revision was for 2022), said that you can generally deduct internet-related expenses, including domain registration fees and webmaster consulting costs, and that if you are starting a business you may have to amortize some of them as start-up costs. That text is about the costs of running a website. It is not a statement about a household broadband bill.

Publication 587 treats utilities and services such as electricity, gas, trash removal and cleaning as primarily personal expenses, while allowing the business part if you use part of your home for business, with the business percentage generally the same as the percentage of your home used for business. It does not mention home broadband by name, and neither do the other IRS pages we reviewed.

What that means in practice

There are three consistent ways a seller could treat a household internet connection, depending on whether and how you claim a home office.

1. No home office deduction. Treat the connection as a mixed-use cost under the general rule. Estimate the business share from real use (for example, how many hours a day the connection serves listing work, research and messaging versus streaming), record how you got there, and deduct that share. A seller who runs the business from a dedicated space may reasonably have a high figure; a seller who works on a laptop in the living room has to be more conservative.
2. Home office deduction with actual expenses (Form 8829). Utilities and services allocated to the business part of the home sit inside the home office calculation. Putting internet in both places would count the same cost twice.
3. Home office deduction with the simplified method. Publication 587 says that if you use the simplified method, you cannot deduct actual expenses for the business except business expenses that are not related to the use of the home. Whether a household internet bill counts as "related to the use of the home" is not answered in the pages we reviewed. If you use the simplified method, ask your preparer before also deducting a share of internet, and write down the reasoning.

That is a real gap in the published guidance. The safest working approach is to pick one treatment, apply it the same way every year, and avoid double counting.

A worked example (illustrative)

• Internet: $70.00 per month, 12 months = $840.00 per year.
• Documented business share: 25 percent.
• Deduction: $840.00 x 0.25 = $210.00.

If instead you use Form 8829 and the business part of your home is 10 percent of the floor area, the business share of utilities is generally the same percentage, so the same $840.00 would give $84.00 inside the home office calculation and nothing outside it. You take one figure, not both. Domain registration and a store builder's monthly plan are business-only costs and need no sharing.

8. How the home office rules interact with the rest

The home office deduction has its own tests, but it affects the mileage and utilities answers above.

The tests

Publication 334 and Publication 587 set out that the part of your home you claim must be used exclusively and regularly for your business, and must be your principal place of business, a place where you meet clients or customers in the normal course of business, or a separate structure. Exclusive use means a specific area used only for the business; a room shared with family recreation fails. Regular use means on a continuing basis, not occasional or incidental. Publication 587 states that using your home for occasional meetings and telephone calls will not qualify.

A home office qualifies as your principal place of business, Publication 334 says, if you use it exclusively and regularly for the administrative or management activities of your business and you have no other fixed location where you conduct substantial administrative or management activities. For a dropshipper who handles listings, orders, messages and bookkeeping from a desk at home, that description is familiar.

Storing inventory

Publication 587 has an exception for sellers who hold stock at home: if you sell products, keep inventory or samples in your home, it is the only fixed location of your business, and you use a separately identifiable storage space regularly, you can deduct that space without meeting the exclusive-use test. A pure dropshipper holds no stock, so it will not apply.

The simplified method

Publication 334 says that in most cases you figure the simplified method deduction by multiplying $5 by the area of your home used regularly and exclusively for business, with the area limited to 300 square feet. That is a maximum of $5 x 300 = $1,500. Publication 587 says you choose each year whether to use the simplified method, the election is made on a timely filed original return, and it is irrevocable for that year. Using it means you do not deduct actual home expenses for that year, and depreciation on the home is deemed zero.

The deduction is also limited by income: Publication 334 says that if gross income from the business use of the home is less than your total business expenses, the deduction for expenses such as insurance, utilities and depreciation is limited.

Why this matters here

• It decides whether your trips from home to business places are commuting or deductible (the "principal place of business" rule in section 3).
• It decides whether a share of utilities (including potentially internet) sits inside the home office calculation or stands alone.
• A business phone is not a home expense. Publication 334 lists a business phone among the business expenses related to the business activity in the home, not to the use of the home itself, so it is deducted separately from the home office figure.

9. Records: what to keep and how long

IRS Topic 305 says you must keep records supporting an item of income, a deduction or a credit for as long as they may become material in the administration of any provision of the tax code, which generally means until the period of limitations for the return runs out. It lists these periods:

Topic 305 also says there is no required bookkeeping method for a business, but the one you use must clearly and accurately reflect gross income and expenses, and the records should substantiate both income and expenses. For the topics in this guide, a minimal set looks like this:

• The mileage log for the year, with the odometer readings at the start and the end of the year.
• Receipts for parking and tolls.
• If you use actual expenses: fuel, repair, insurance and registration documents and the loan or lease paperwork.
• Phone and internet bills for the year, plus the note and the evidence showing how you set the business share.
• The floor-area measurement and photos or a simple plan of your home workspace if you claim a home office.
• Your filed return and the workings behind the numbers on it.

Store digital copies somewhere that does not depend on one device.

10. Common mistakes

• Deducting commuting. Driving from home to a regular job or shop is not deductible, however far it is and whether or not you take calls on the way.
• Using one flat rate for the whole of 2026. The business rate changed on July 1, 2026, so trips before and after need different rates.
• No log, or a log rebuilt in January from memory. Publication 463 wants records made at or near the time of the trip.
• Claiming fast depreciation, then wanting the standard rate. MACRS, section 179 or the special depreciation allowance on a car rules out the standard rate for it.
• Deducting 100 percent of a shared phone or home internet bill. Only the business share is deductible, and you should be able to show where the share came from.
• Deducting the first home landline. The IRS says the basic local service for the first line into your home is personal even with a home office.
• Counting a cost twice. A share of internet or utilities inside a home office calculation cannot also be a separate deduction.
• Treating a home office as automatic. The exclusive and regular use tests are strict, and a shared room does not pass.

For the wider picture of eBay income tax, the 1099-K and sales tax, see our guide to eBay seller taxes in the US, and for the margin side, the US eBay fee calculator and how much you can really make dropshipping on eBay. Sellhelm, the eBay dropshipping software this blog belongs to, prices every listing from your real fees, so your pricing and your tax records start from the same costs. Before filing, take your log and workings to a tax preparer; the gray areas in this guide are questions they can settle quickly for your facts.

Sources and how we checked

Facts in this guide were checked against these official pages in October 2026. Rules and figures change, so confirm anything that affects a decision. This is general information, not legal or tax advice.

• Standard mileage rates (Internal Revenue Service)
• Topic no. 510, Business use of car (Internal Revenue Service)
• Publication 463, Travel, Gift, and Car Expenses (Internal Revenue Service)
• Publication 334, Tax Guide for Small Business (Internal Revenue Service)
• Publication 587, Business Use of Your Home (Internal Revenue Service)
• Publication 535 (2022), Business Expenses (Internal Revenue Service)
• Instructions for Schedule C (Internal Revenue Service)
• Topic no. 305, Recordkeeping (Internal Revenue Service)

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