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 expense with our free mileage log template.
Some business owners don’t track their mileage because they don’t think its worth the effort. While it’s true that there is a hassle factor because the IRS requires specific information, once you have a system set up, it’s pretty easy to do and the savings quickly adds up. In order to get what is rightfully yours, it is so 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 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 rate, which is set by the IRS. As of 2018, the standard mileage rate is 54.5 cents per mile. The other way to deduct mileage is through a percentage of actual expenses from the business use of the vehicle. With the actual expense method, you total up all of the expenses from the use of the vehicle and multiply by the percentage of use in the business. Typical costs that can be included are;
- Lease payments or depreciation
- Vehicle insurance
- 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 rate is 54.5 cents per mile, the deductible amount would have been $2,725. While the standard method is much easier to figure the actual expense method would have let you deduct an additional $275.
Why should you keep a mileage log?
Any business or employee that wants to deduct mileage on taxes will need to have records to back those deductions up. While you could simply estimate (and many business owners have), the mileage deduction is one that is looked at pretty closely by the IRS and many people are audited because of it. You really need to track the miles to avoid a potential audit. Sole proprietors are more likely than other entities to be audited because many of these businesses are owner operated and they simply lack the time and organization to properly document their mileage. The IRS requires the business owner 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 was not able to 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 the travel
- The business purpose
Note this record-keeping requirement goes for the taxpayer using the standard method rate or the actual expenses method.
To help with mileage tracking, here is a PDF Mileage Log Template that you can print out and keep in your vehicle, or in a binder or folder. If you would like to keep your mileage in a spreadsheet, here is a free Excel Mileage Log Template. It may be easier to print out the pdf format to put in your vehicle and at the end of the month, record the trips in the Excel spreadsheet. 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.
Some Tips for Tracking Business Mileage:
Here are some tips on how to keep track of mileage:
- Make a habit of recording your odometer reading on January first. You will need it to record your total mileage 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 when you get home.
- 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: Desired printer out of stock…anything to jog my memory if I ever needed to defend my log.
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 of your home, the number of miles between your house and your business is commuting miles and are 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.
Keeping a mileage logbook is definitely worth the trouble, but easier with a pre-made template. Even a small number of qualifying miles can really add up and save on your taxes.