Tracking Your Mileage For Business Purposes

If you are a self-proprietor, and driving is part of your business, you have a choice to either deduct your mileage, or to deduct the portion of the cost of your vehicle expenses.

From the IRS:

To use the standard mileage rate, you must own or lease the car and:

  • The car must not be used to transport persons or property for compensation or hire, for example as a taxi
  • You must not operate five or more cars at the same time, as in a fleet operation
  • You must not have claimed a depreciation deduction using the Modified Accelerated Cost Recovery System (MACRS) on the car in an earlier year, including any additional first-year depreciation or “bonus depreciation” or any method other than straight-line for its estimated useful life
  • You must not have claimed a Section 179 deduction or bonus depreciation on the car; and you must not have claimed actual expenses after 1997 for a car you leased, and
  • You cannot use the standard mileage rate if you are a rural mail carrier who received a “qualified reimbursement”

Further, to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Then, in later years, you can choose to use the standard mileage rate or actual expenses.

However, for a car you lease, you must use the standard mileage rate method for the entire lease period (including renewals).

We have always used the standard rate for Mr. A’s business, for two reasons: 1) our vehicles are older, and even though our repair costs may be higher than for a new car, there is no monthly payment, insurance is much less expensive and 2) Mr. A drives a lot of miles each year.

In 2010, Mr. A put 39,000 miles on his business vehicles.  Not every single mile was business related; there were a handful of times when the vehicle was used for personal use, and those miles are accounted for on our mileage spreadsheet.

The IRS requires you to keep a record of the miles that you drive.  If you are ever audited, you will want to have this documentation to prove that you did indeed drive those miles. When filling out your income taxes you will be asked how many total miles the vehicle was driven in the year, so be sure to write down your odometer reading on January 1st and on December 31st so that you know the total miles. You will also be asked how many were driven for the business, and how many were driven for commuting.  Commuting miles are those from workplace to home. If you are a self-proprietor who also has a “regular” job, you will have both business miles and commuting miles.  I do have a few business miles for my own vehicle, so I calculate the commuting miles based on the days I go in to the office, and then I have a short list of miles that were driven for business purposes.

If you have a new car you might choose to take a percentage of the costs to operate your vehicle. In this case, you can count things like oil changes, tires, gasoline, etc., but be sure to save every single receipt including gasoline receipts as you will need those to prove your expenses (in case of an audit). I know some think it’s okay to just use their credit card statement nowadays, but I would keep all receipts to be on the safe side. If you lose a few that’s no big deal, but try to keep all of them. Especially if your costs are significant. At the very least, you don’t want to end up in a situation where you claimed $5,000 in gasoline but can’t prove it, and end up having to pay taxes on those disallowed expenses. I believe you can also claim a portion of the cost of the vehicle, but I have never done that myself, so you would need to look into that further with your accountant.

As I mentioned, Mr. A keeps track of his miles and we enter them into a mileage spreadsheet.   I’ve built a few fancy options into this spreadsheet, for example, if I enter the cost of gasoline per gallon into the correct column, the actual cost for that trip is calculated automatically.  When the year is done I print out the spreadsheet and store it with the year’s income taxes.

I am putting together a sample spreadsheet to share how we keep track of our mileage. If you are interested, let me know in the comments and I will make a point to get that posted.

Please note that I am not a tax professional, the information in this post comes from what I’ve learned from my husband and I being self-proprietors.

Do you use your vehicle for business purposes?  Do you find it more beneficial to deduct the mileage or the actual expenses?

 

 

 

 

 

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2 thoughts on “Tracking Your Mileage For Business Purposes

  1. I totally agree it is easier to just use the standard mileage rate.

    [Reply]

    Mrs. Accountability Reply:

    @krantcents, it is easier, but I still think people have to consider their own situation. For example, if you buy a new car every two years and you’re a real estate agent but you only show houses within a 20 mile radius you might not put a lot of miles on your vehicle, but the cost for the vehicle/gasoline/oil changes will probably exceed the cost of the mileage. But yeah, seems easier to me. The other nice side effect of my husband tracking his mileage is he can go back to the spreadsheet to verify where he was on which days, so that helps, too.

    [Reply]

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