Tax deductions are awesome, especially when it comes to using your personal vehicle for business purposes. $4.00+ gas prices aside, if you’re driving any distance on a daily basis for work - not including your daily commute or lunch break - you’re putting a whole lot of wear and tear on your vehicle. Those costs can start to add up real quick.
That’s why it’s so important to be sure that you’re tracking your mileage the RIGHT WAY for tax purposes. No, it is not enough to just write down how many miles you drove every day. If that’s all you do, the IRS is very likely to deny your mileage claim. If you’re planning to write off your mileage for tax purposes, you need to know EXACTLY how to record everything to make your accountant - and the IRS - happy.
How Much Does the IRS Need to Know About Your Mileage?
It feels like everything - they need to know literally everything! But the things that you must have documented for every trip you plan to claim include:
- Your starting location and ending destination (exact location or address)
- What the purpose of the trip was, including who you saw and why you went there
- When you made the trip (date)
- How many miles you traveled (each way)
- Total mileage on your vehicle for the year (odometer readings on December 31st or January 1st)
The total mileage might seem a little strange, but the IRS uses this information to determine what percentage of your driving was for business versus personal use. If you’re using more than one personal vehicle for work, you’ll need to include that information, as well.
How to Submit Mileage Information to the IRS
First of all, we do not recommend that you submit pictures of your odometer or write your trip info down on random envelopes or pieces of paper. You want to ensure that every single trip is properly recorded so that you can take the maximum deduction allowed by law. It’s your money - we want you to keep more of it in your wallet!
There are lots of affordable options out there for keeping track of your mileage without having to manually handle everything in a spreadsheet or document. For around five bucks a month, you can download the MileIQ or Everlance apps to your phone. Plus, if you have an Office365 subscription, MileIQ is now included for free, making it super convenient.
This year’s mileage deductions are as follows:
- 58.5 cents per mile driven for business use, up 2.5 cents from the rate for 2021,
- 18 cents per mile driven for medical, or moving purposes for qualified active-duty members of the Armed Forces, up 2 cents from the rate for 2021 and
- 14 cents per mile driven in service of charitable organizations; the rate is set by statute and remains unchanged from 2021.
Tips for Keeping Track of Your Mileage
DO. IT. EVERY. DAY. Every. Single. Day.
Having an app on your phone makes it quick and easy to record your mileage at the end of every trip. Don’t even get out of your car until you’ve recorded it. If you’re a “sit in your driveway for five minutes to decompress” kind of person, make recording your mileage part of your routine.
The app will prompt you to add all of the necessary information for each trip so you won’t have to remember exactly what to write down every single time you drive somewhere for your business.
You’ll also want to take a picture of your odometer at the beginning and end of each year so you know what percentage of your mileage was for business purposes vs personal purposes when you submit it to the IRS. Set a calendar reminder for December 31st or January 1st so you remember to run out to the car and snap that pic for your records.
It’s also important to remember that regular commutes, lunch breaks, and any personal errands are NOT included when you write off your mileage at the end of the year. (Really, they’re not. We hear this all the time. Seriously, don’t include them.)
The Alternative to Standard Mileage Deduction
When you take the standard mileage deduction, that rate accounts for gas, maintenance, wear and tear, etc. so you don't have to track every single vehicle expense. Also note that it isn’t common to take gas as a business expense if you're taking a mileage deduction for your personal vehicle.
The alternative to taking the standard mileage deduction is tracking every expense for your car for the year (gas, maintenance, registration, repairs, etc.), AND tracking all of your business and personal miles. Then you take the proportional percentage of business usage as a deduction. It’s a lot of things to track and it needs to be done right - which is why we usually advise clients to use the simpler method of just tracking their mileage versus trying to write off every expense for their personal car with a justification about how it is for business purposes. Truth is, most of the time, it’s not.
Parking and tolls are always separate expenses that should be documented. Other deductions may be applicable based on your specific situation, and we always recommend speaking with a qualified tax advisor about your unique business needs.
Mileage is one of those deductions that are great to have to help bring down your taxable income, but we always want to make sure that our clients get it right. If you have questions about recording your mileage or want some help on the best ways to do it, contact Hill Bookkeeping for assistance.