Part of the business year-end wrap-up includes gathering info in regards to business use of your auto. Whether you used either a business owned vehicle or your personal car, you need to collect and calculate your mileage. To do this, the IRS wants a log that includes the date, starting mileage, ending mileage, and purpose of travel. Seems simple, but yet every year it is the one thing most of the business owners we have worked with struggle with year, after year, after year. Getting a simple, doable system in place can get you back on track to take advantage of this valuable deduction.
Should you track actual expenses or mileage?
Your tax professional will guide you on which choice is best for you. Expenses tracking means tracking all gas, maintenance, insurance, car payment/lease. Miles tracking is just that – tracking the mileage you’ve traveled for each business specific trip.
- Parking and tolls are 100% deductible
- Depending on your tax professional, parking or driving tickets may not be deductible
- If you are in your first year of business track both actual and mileage, it is easier to over track items than it is to go back and recreate
PRO-TIP: The newer your car, the more you might benefit from using the actual expense method because you also deduct depreciation on it. But, as with the similar deduction you can take for home-based expenses, you can only deduct the portion of your vehicle(s) that you use for your business, which means you need to also keep track of how much you use it for business as compared to personal errands.
NOTE: Many years ago tax professional would accept answers from their clients like:
Same as last year
100% of my car is for business
These do not fly any longer. Pull up your big kid pants and let’s find a solution that will work best for YOU.
A Successful New Year
The key is to find a tool to tracking mileage that you will actually use. While you may be more tactile or technology focused with your other tools, this may not hold true when you are seated in your car heading to your next appointment. It never hurts to keep a pad of paper in the car as Plan B.
Even in this sector, technology has improved leaps and bounds. However, some of the tools our clients have used are hit and miss when it comes to successful tracking. If you do choose technology, a regular monthly review of the data and downloads are recommended. One of our clients relied solely on one technology to track her mileage; when we went to pull tax related items together we sadly realized the technology had stopped working about mid-year. Reviewing and organizing the info monthly will keep it top of mind and ensure you’re gathering the correct data.
Here are options that we’ve had first hand experience with:
Office Max Mileage Report Manual Log – Plan B at its best!
Trip Miles: iPhone App – we’ve seen even more available in the app store.
Car Costs Complete: Android App – there are a lot of apps out there, play around with them.
Mileage Logger – A device that stays in your car and uploads data to the cloud for tracking.
Expensify – Mileage and expense tracking
Shoeboxed – Scanning service with mobile phone access and mileage tracking
Fixing the Last Tax Year
To start: capture when you traveled, where, and for what purpose. You may even have that already listed out in your online calendar. Now that you know where you went you can use Google Maps to get estimated miles between the destinations. To find your starting and ending mileage, we recommend finding a receipt for an oil change or maintenance for your vehicle either in December/January. Mileage is normally taken at those times and will give you a good starting point. Create a log using an Excel spreadsheet to track the items listed above. Add a column for personal travel and commute: that means commuting from home straight to your office is not business travel. It isn’t perfect but it will get you partially there.
By not taking the time to track your business mileage you are literally leaving a potential tax deduction untouched. We would love to hear from you about what tracking tool are working best for you, and which new ones you’ve come across!
ADI Team Resources
Find most current mileage rates HERE
Need more info check out the IRS Publication 463, Travel, Entertainment, Gift, and Car Expenses.