Many business owners incorrectly track their mileage, which could be an expensive mistake. Find out how to comply with IRS regulations and legally deduct business mileage expenses with our free mileage log template.
Some business owners don’t track their mileage because they don’t think it’s worth the effort. While it’s true that there is a hassle factor because the IRS requires specific mileage information, once you have a system set up, it’s pretty easy to do, and the savings quickly add up. To get what is rightfully yours, it is important for you to understand that the tax code has strict limitations on claiming business mileage deductions.
What Counts As Business Mileage?
Any trip for business purposes counts, such as depositing checks at the bank, meeting clients at the worksite, or picking up supplies at the office supply store.
How Much Is The Deduction Worth?
There are two methods of figuring the business mileage deduction. One is the standard mileage deduction, which is set by the IRS. As of 2021, the standard mileage rate is 56 cents per mile, down 1.5 cents from the standard rate in 2020. The other way to deduct mileage is through a percentage of actual expenses from the vehicle’s business use. With the actual expense method, you total up all of the business expenses from the use of the vehicle (starting mileage and ending odometer readings) and multiply by the percentage of use in the business. Typical costs that can be included are;
- Lease payments or depreciation
- Vehicle insurance
- Cost of repairs and maintenance items like tires, batteries, oil changes, air filters, etc.
For example, let’s say 75% of the miles driven were for business purposes. You would multiply the total vehicle expenses ($4,000 for this example) by .75 to arrive at the deductible amount. The deductible amount under the actual expense method would be $3,000.
In this same example, if you drove 5,000 miles during the year and the standard mileage rate is 58 cents per mile, the deductible amount would have been $2,900. While the standard method is much easier to figure, the actual expense method would have let you deduct an additional $100.
Why Should You Keep A Mileage Log?
Any business or employee who wants to deduct mileage on taxes will need to have detailed records to back those deductions. While you could estimate (and many business owners have), the mileage tax deduction is looked at pretty closely by the IRS, and many people are audited because of it. You really need to track the miles for business and personal use to avoid a potential audit. Sole proprietors are more likely than other entities to be audited because many of these businesses are owner-operated. They lack the time and organization to document their mileage properly. The IRS requires small business owners to substantiate mileage deductions by having adequate records to prove the amount, date, location, and business purpose.
In one example, the Tax Court case: Royster v. Commissioner, TC Memo. 2010-16 (2010), the court ruled that the taxpayer was not entitled to any deduction for his business miles…because the taxpayer’s logs “contained entries for only the beginning and ending odometer reading of the vehicle each day.
The logs did not contain any entries regarding the business purpose of the trips or the destination of each trip as required by the tax code”.
Mr. Royster lost three years of business mileage deductions because of his omission. Furthermore, the court held him liable for accuracy-related penalties as he could not provide sufficient additional evidence to meet the strict substantiation requirements of section 274(d).
The court emphasized that a deduction is not allowed for the business use of a vehicle unless the taxpayer substantiates:
- The amount of such expense
- The time and place of business travel
- The business purpose
Note this record-keeping requirement goes for the taxpayer using the standard method rate or the actual expenses method.
Free Printable Mileage Log Templates!
Here is a PDF Mileage Log Template that you can download and print out to keep in your vehicle or in a binder or folder to help with mileage tracking. If you would like to keep track of mileage reimbursement in a spreadsheet, here is a free Excel Mileage Log Sheet. It may be easier to print out the pdf format to put in your vehicle and record the trips in the Excel spreadsheet at the end of the month. You can even use a pocket calendar and keep it in your glove box….just make sure there is room to record the beginning and ending odometer reading to tally the total miles driven (can use the last 3 or 4 numbers as long as you have the full odometer reading from Jan 1), the destination, and the purpose of the trip and tally up all of the trips later. No matter whether you’re a solopreneur, employer, or an employee, you must keep flawless business mileage records so that you gather all the necessary data for either determining the mileage deduction on your tax return or completing your company’s mileage reimbursement form.
Mileage tracker apps are available for Apple and Android devices as a digital version of automatic mileage tracking and at an affordable cost too. For many, downloading and using an app may be more convenient and provide a more accurate record of your business mileage than writing in your entries on a sheet.
Some Tips For Tracking Business Mileage:
Here are some mileage tracking tips to get the most out of your mileage reimbursement:
- Make a habit of recording your odometer reading in your mileage log template on January first. You will need it to record your total mileage for the entire year on your tax return.
- Make a habit of always recording your mileage even if you have to write it down on the back of your receipt or a scrap of paper. Just make sure you fill in the remaining information in your mileage log when you get home. If you need to you can keep track of business driving with an online map.
- Make sure you have receipts or source documents to verify business miles. See business receipt tracking. I personally note on my mile log sheet if I don’t have a receipt such as the Desired printer out of stock…anything to jog my memory if I ever needed to defend my log.
- Don’t forget to track parking fees and other costs related to business travel.
Note: If you have a home business, you can deduct your auto mileage from your home to the business destination and back again.
However, if your business is outside your home, the total number of miles between your house and your business is commuting miles and is not deductible. You will need to record the mileage for business trips from your business location to your business destination and back to your business. Also, be sure to keep track of business versus personal mileage reporting to stay safe with the IRS.
Keeping a mileage spreadsheet is definitely worth the trouble, but easier with a pre-made template. Even a small number of qualifying miles can really add up on tax deductions for small business owners.