How to Track Mileage for Taxes

s a business owner, having a strong tax strategy in place can help you avoid unnecessary expenses. Tracking your mileage can help you claim all of the deductions you’re entitled to if driving is a significant part of your work. This guide will cover everything you need to know about how to track mileage for taxes.

What does it mean to “track mileage”?

The IRS allows you to deduct vehicle expenses for some types of business-related travel, including visiting clients, driving to different work sites, or going to business meetings. Unfortunately, most commuting-related expenses aren’t tax deductible, so you can’t count the miles you travel from home to your office. There are some exceptions, however. You can deduct commuting expenses in the following cases:

• You work from home and have to travel to other places to do business.
• You have to travel to different work locations as part of your job. In this case, you can’t deduct the travel to or home from your primary office, but you can deduct travel to other work sites.
• You have to temporarily travel to a worksite outside of your normal work area.

There are two methods you can use to determine your deduction:

• Standard mileage rate: The IRS sets a standard per-mile deduction rate each year. For 2023, the standard rate is 65.5 cents per mile.  You multiply this rate by your total business miles to calculate your deduction.
• Actual expense method: Alternatively, you can deduct the actual expenses of operating your vehicle for business, including gas, repairs, insurance, and depreciation. This requires more detailed record-keeping.

For either of these methods, you’ll need to keep detailed records about the miles you travel for business versus personal use. Although you don’t need to turn in your mileage if you use the actual expense method, you do need to know what percentage of the time you used your vehicle for business use. If you use the actual expense method the first year you claim expenses for the vehicle, you will not be able to switch to the standard mileage rate in future tax years. However, if you start with the standard mileage rate, you can later switch to the actual expenses method.

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Is it required to track mileage for my business?

There’s no law that you have to write off mileage on taxes. However, if you don’t, you can’t claim a deduction for business-related driving expenses. If you drive frequently for your business and don’t track your mileage, you could be missing out on significant tax savings.

The benefits of tracking mileage include:

• Tax deductions: The most direct benefit of tracking mileage is the ability to claim tax deductions. The IRS allows you to deduct a certain amount per business mile driven, which can substantially lower your taxable income.
• Accurate expense tracking: Keeping a detailed log of business mileage helps in accurately tracking transportation expenses. This can be crucial for budgeting and financial planning, as it provides a clearer picture of your operating costs.
• Improved financial management: By understanding the extent and cost of your business travel, you can make more informed decisions about resource allocation and cost-saving strategies.
• Reimbursement documentation: If your business includes employees who use their personal vehicles for business purposes, mileage tracking is essential for fair and accurate reimbursement.
• Audit protection: In the event of an IRS audit, having a meticulous record of business mileage can serve as crucial evidence to justify your deductions. This detailed record-keeping can be the difference between a smooth audit process and a problematic one.

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Steps to maintaining a driving log

You’re better off having too much information than not enough when it comes to tax documentation. Keeping a detailed driving log will simplify your life when you’re ready to file taxes.

1. Choose your method

Decide how you’ll track your mileage:

• Manual logbook: A traditional approach where you manually enter details in a logbook.
• Digital tracking: Use a smartphone app or a GPS device that automatically records your trips. Many apps are designed specifically for mileage tracking and can simplify the process.

2. Write down the starting odometer reading

Before you begin tracking your mileage, write down your odometer reading at the beginning of the year. If you start using a car for business after the beginning of the year, just write down the odometer reading when you start using it.

3. Record basic information

Write down information about each trip:

• Date of the trip: Always note the date of each business trip.
• Purpose of the trip: Record the specific business purpose, like meeting a client, attending a conference, or purchasing supplies.
• Starting point and destination: Include the addresses or at least the names of the starting point and destination.

4. Track the mileage

Calculate your mileage for each business trip you take:

• Odometer readings: Note the odometer readings at the start and end of each trip.
• Total miles driven: Calculate the total miles driven for each business trip.

5. Include additional details

You may also need the following information:

• Vehicle Information: If using multiple vehicles, specify which one was used for each trip.
• Expenses: Keep track of any additional expenses related to the trip, like tolls or parking fees.

6. Write down your ending odometer reading

At the end of the tax year, write down your ending odometer reading. You’ll need this to figure out the percentage of time you used your car for business purposes. If you stopped using the car before the end of the year, write down the mileage when you stopped using it.

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How does the IRS verify mileage?

If you’re audited, the IRS may verify your mileage in several ways. Your mileage log will be the primary method the IRS uses. They will want to see detailed information in your log. However, they may also require you to provide supporting documentation for the miles you claim, such as receipts and business records.

Steps to report mileage on your taxes

If you’re a sole proprietor or single-member LLC, you’ll use Schedule C to claim a mileage deduction on your taxes. Part II, Line 9 deals with vehicle expenses. Here's exactly how to claim mileage on taxes:

• If you're using the standard mileage rate, you'll enter your calculated deduction (total business miles multiplied by the standard mileage rate).
• If you're using the actual expenses method, calculate the total cost of operating your vehicle for business (including gas, maintenance, insurance, and depreciation) and multiply this by the percentage of time the vehicle is used for business.

You may also need to include information about your vehicle on Schedule C in Part IV:

• This section is necessary if you're claiming vehicle expenses. You'll need to answer questions about when you started using your vehicle for business, whether it was available for personal use, whether you have another vehicle available for personal use, and whether you have evidence to support your deduction.
• If you used more than one vehicle for business, you may need to fill out additional forms or records.

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Takeaways

Many entrepreneurs find filling out tax forms daunting. Although completing mileage logs can be tedious, the tax savings may be worth it. Using a digital app can make the job easier.

When it comes to taxes, the more detailed your records, the better. Novo’s business banking solution provides a complete platform for all of your business banking. Our completely free business checking account helps you get your financial records in order, so you’ll be ready to take your business to the next level. Sign up today to get started.

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