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Business Mileage Tracking: Creating a System that Works

One of the benefits of being a business owner is the opportunity to manage your tax burden by leveraging write-offs and deductions that are available. Not only can you write off office supplies and business services, but mileage tracking can be another powerful way to maximize the deductions that are available.

These mileage deductions can be worth a lot since the write-off calculation is based on the number of miles driven in the year. The problem is that many business owners use the vehicle for both personal and business purposes, making it challenging to determine the number of miles that were used for business activities.

Two Options for Mileage Deductions

Working with an experienced small business accountant is the best solution to identify the right method for calculating your tax deductions. Every business is unique, which is why it is always smart to consult with an experienced professional who can offer personalized recommendations.

You’ll find that two methods can be used for mileage deductions:

  1. Standard Mileage Deduction: The IRS sets a certain amount each year that can be used for every mile you drive for business activities. This number changes with time; increasing to accommodate the rising costs of vehicles and maintenance. The calculation is simple because you need to multiply the number of miles driven by the standard rate for the year. You can find the published annual rate on the IRS website.
  2. Actual Expense Method: On the other hand, you can deduct the cost of repairs, gas, insurance, and all other transportation-related costs when you choose the actual expense method. This calculation can be burdensome and time-consuming because of all of the calculations that are required. Not only do you need to focus on business mileage tracking, but you also need to keep track of all applicable expenses.

Recording Business Driving

The IRS requires that your mileage is tracked by recording every mile you drive throughout the year, using a diary or logbook. Every time you get in the car, the trip needs to be recorded. Then, the business miles are pulled out and calculated to determine the write-off for the year. You must record the starting mileage on the odometer, the ending mileage on the odometer, and the reason for the trip.

The problem is that this method can be burdensome and easy to forget when you are working. Most people don’t want to take the time to record the information every time they get behind the wheel! One option is to use the sampling method. This strategy requires that you are consistent about keeping track of your business mileage for a portion of the year. Then, these figures are used to determine the mileage for the whole year by extrapolating the numbers that were calculated when you were recording the business mileage. The sample period needs to be a minimum of 90 days, or you can choose to sample one week per month.

With the sampling method, the assumption is that you are driving about the same amount for business all year long. Even though you aren’t tracking your mileage all the time, you will still need to maintain an appointment book showing the consistency of appointments throughout the year.

IRS Requirements for Business Mileage Tracking

What needs to be included if you choose business mileage tracking to leverage the available deduction? This write-off is offered to 1099 workers, such as small business owners, self-employed people, and freelancers.

W2 workers cannot deduct mileage for tax write-offs. But if a person is working a W2 job and has a business on the side, mileage can be tracked and used as a deduction when driving for the side business.

Qualifying trips include anything related to business activities. For example, you should record your mileage when driving to the bank, picking up office supplies, meeting clients, or driving between offices. Your commute can’t be deducted, but you can track your mileage if you are in the car to run business errands or attend meetings.

The IRS requires that your mileage log includes the following information:

  • Mileage details – the number of miles driven
  • Date of the trip
  • Places you drove
  • The purpose of the trip

At the end of the year, you will need to calculate the total number of miles driven, broken down into three categories: business, commuting, and personal trips. The most effective way to keep these records is by recording the information daily.

Paper or Digital Business Mileage Tracking?

You can keep a dedicated notebook and pen handy and write down the details every time you get in the car. This manual method of tracking is legitimate, but it can be a bit tedious… especially when you need to pull all the numbers together at the end of the year.

Another option is to use a mileage app. A variety of smartphone apps provide the information that the IRS needs, giving you an automated way to log, track, and calculate the mileage details for each trip. The IRS will accept either paper or digital tracking logs, as long as all of the required information (listed above) is included.

One benefit of choosing a digital tracking system is that you can keep a back-up of your records. A physical mileage book could be easily lost or damaged, resulting in problems later on if you need to show the documentation. On the other hand, a digital business mileage log can be saved to the cloud and backed up. The right digital filing system is a powerful way to ensure that your information is never lost along the way.

Tracking your mileage for a business write off is different than a gas logbook to calculate mileage efficiency. If you are keeping a gas logbook, it is still necessary to have a separate tracker for business mileage tracking.

Features of Mileage Tracking Apps

The technology and app access changes so quickly that it can be hard to stay current with the latest recommendations. If you are looking for an app that tracks your mileage, then the best solution is to ask your small business accountant for current recommendations. An online search can also be a great resource to help you compare features and options.

These are some of the features that should be considered when choosing a mileage tracking app:

  • Automated tracking using GPS to detect when and where you are driving
  • Organization of business and personal trips to calculate mileage for the year
  • Minimal drain on your phone battery
  • Documentation for all IRS requirements
  • Option to add a manual trip as needed
  • Easy data exporting to provide information to your accountant

Here are a few mileage tracking apps that you might consider, you can search for them in the app store on your cell phone (such as iTunes or Google Play):

  • MileIQ
  • Everlance
  • Hurdlr
  • Mile Expense Log
  • Stride Drive
  • TripLog

You’ll see that most of these apps are either free or require a minimal monthly fee. It’s worth a few bucks a month to have the right tool that simplifies your life by helping with mileage tracking!

Documentation for Business Deductions

Even though it is important to keep track of mileage logs and other documentation for business deductions, these documents don’t need to be provided to the IRS when it is time to file your taxes. Your business accountant can help with tax preparation and filing based on the records that were kept throughout the year. Keeping accurate and detailed records ensures that you can maximize the potential write-offs, helping to decrease the tax burden you will be carrying.

After the tax return is filed, you still need to hold onto this information in case the IRS requests documentation in the future. If you are selected for an audit, then you will need to provide full information to back up the deductions that were claimed on your tax returns. You may need this information for up to seven years after the taxes are filed.

Leveraging Deductions for Your Small Business

It is easy to let the deductions fall through the cracks when it seems like all of the expenses are small. But a few dollars here and there can add up over the year, resulting in significant tax savings. Why pay more for your taxes when you have the option to write off some of your spending?

Small business tax deductions vary depending on your business model. An experienced, outsourced accountant can offer recommendations and advice about the best ways to leverage your spending and use the deductions to your advantage. Any time you are driving your car or spending money related to business efforts and activities, it is smart to record the details so that you can use them for your taxes.

If you are looking for help with your tax preparation and deductions, then Easier Accounting is at your service. Call our team to learn more about the small business accounting services that are available: (888) 620-0770.