Tracking mileage and vehicle expenses is not normally at the top of a small business owner’s to-do list. In fact, the job often gets lost in the day-to-day hustle and bustle of running a successful business. So how do you keep track now so you don’t have to panic come tax season?
- Keep track of miles driven for business. If you track nothing else vehicle-related for the rest of the year, tracking mileage is the most important task. You cannot deduct vehicle expenses if you don’t know how many miles you’ve driven. The IRS wants to know the total number of miles you drove for your business in a given year in order for you to claim the Standard Mileage Rate. Your commute to and from the office is not deductible; however, almost all other business travel is. The most accurate records are those that are calculated the day you traveled for business or shortly after. While a paper and pencil mileage log works just as well as anything, there are several ways to utilize technology to keep track. Logging the miles on your GPS may provide you with the most accurate record without much maintenance. Apps like Mileage Log+ or Everlance automatically calculate your distances by entering where you’re leaving from and where you’re going.
- Calculate all vehicle expenses.This may sound like a daunting task, but if you travel a lot for your small business, it’s not a bad idea. Keep a notebook in your car where you jot down miles driven, gas and oil changes, tire rotations, car washes, parking fees, registration and license fees, insurance payments, lease payments, repairs, and maintenance. Keep your receipts for these expenses as well. You may opt to use the Standard Mileage Rate come tax season, but it doesn’t hurt to have all records of vehicle expenses so you can compare the two methods and see which will offer the greatest deduction.
- Use the Standard Mileage Rate. Rather than adding up all business-related vehicle expenses in a year, the IRS offers the Standard Mileage Rate which provides a 57.5 cent deduction (2015) for every mile driven for business in a year. To figure your standard mileage rate, simply take the number of miles driven total and multiply it by the current standard mileage rate (which changes every year). Most small business owners opt for this quick and easy method and even end up getting a larger deduction by going this route.
But what if I haven’t been tracking mileage or vehicle expenses?
You’re not completely out of luck if you haven’t been tracking mileage this year. While the IRS does not prefer reconstructed records after the fact, if you can prove you drove to where you said you drove, you can still deduct your mileage. If you maintain a calendar, appointment book, or planner, you can go back through your records and calculate your mileage based on the appointments you attended and the miles you drove. You will only need proof of records if you were to be audited by the IRS, which is a small risk, but still a possibility.