Drive up mileage deductions

Mileage tracking refers to keeping a log of miles driven for tax deduction or reimbursement purposes. For 2019 tax filings (that are due by April 15, 2020), you can claim a 58-cent deduction per business mile. That means every mile driven to meet clients, run business errands, or grab work supplies will add up to one thing: cash, either deducted from your taxes or reimbursed after you file. Rideshare drivers, photographers, Etsy shop owners — anyone who is self-employed or runs a small business — we’re talking to you. Here’s a rundown on everything you need to know about tracking business and personal mileage for your taxes.

What counts as deductible mileage?

First, determine what qualifies as business mileage. The IRS has strict rules about what counts and what doesn’t. For example, traveling between offices and worksites, driving to meet a client for drinks or heading to the store for business-related supplies counts. But commuting anywhere from home doesn’t — even if you’re taking a business call in the car or going into the office to meet a client.

How to track your business mileage

Keep track of each trip, because if you are ever audited, the IRS expects pristine records. One simple method is to use paper and pencil. It should show the date, destination, business reason for the trip, odometer readings, and total mileage. You just need to do a lot of calculations when you are adding everything up. As long as you can remember to do this every single time, you will be fine.

The easiest and most effective way to do this is to use a mileage app on your smartphone to track it all for you. Mileage tracking in the QuickBooks mobile app is unique because it automatically tracks mileage and integrates it into QuickBooks with your other deduction tracking.

 The app automatically determines start and stop locations based upon your time in transit and the amount of time you spend at a location. Just like how the app handles expense categorization, you can swipe left for business miles or right for personal miles when the tracked mileage is logged.

Standard mileage rate vs. actual expense method

Once you have a record of your miles, you can determine the amount you can deduct. There are two ways to determine this: the standard mileage rate method or the actual expense method.

Qualifications for the standard mileage rate method vary depending on if you own or lease the car and for how long, as well as what claims you’ve made on the car in years past.

The IRS provides a helpful list of driving activities that qualify as business use, which include:

1. • Travel between business locations (not between home and work)
   • Business errands
   • Travel to business meals
   • Travel to business entertainment
   • Drives to the airport for business travel
   • Customer visits
   • Travel to temporary job sites
   • Travel to job interviews
   • Tolls and parking during business trips

 

If you qualify to use this method, you simply multiply your business miles by the applicable standard mileage rate, which in 2018 is 54.5 cents per mile. For example, if by the end of the year you’ve driven 25,000 miles, your total mileage deduction will be $13,375.

25,000 miles x 54.5 cents/mile = $13,625

If you want to use the standard mileage method, you have to do so for the first year that you drive for work. Afterwards, you can choose between the standard mileage method and the actual expenses method. Keep in mind that if you choose the standard mileage method, you can’t deduct any other vehicle expenses.

To use the actual expense method, you have to determine what it costs to operate the vehicle for your business use. The IRS lists a number of vehicle expenses that you can claim if you use your vehicle for work. You cannot deduct fines—such as speeding tickets—that you incur while driving for business.

Legitimate expenses include:

1. • Depreciation
   • Lease payments
   • Registration fees
   • License fees
   • Gas
   • Insurance
   • Repairs
   • Oil
   • Garage rent
   • Tires
   • Tolls
   • Parking fees
   • Damages not covered by insurance payments
   • Theft not covered by insurance payments

 

The IRS requires that you substantiate your business expenses with documentation, such as receipts, work orders, or other written records. For each expense, be sure to record the expense amount, expense date, place of service/purchase, and description.

If you qualify for both methods, you may want to calculate them both to see which will yield you the larger deduction. If you use QuickBooks Online, the app will do the standard mileage rate math for you.

Tracking mileage for medical, moving, and charity

While those who are self-employed have access to the highest deduction rate and fewest restrictions, that doesn’t mean there aren’t other reasons to track your mileage. For 2018 tax filings, those who qualify can deduct 18 cents per mile driven for medical or moving purposes, and 14 cents per mile driven in service of charitable organizations. Since the app tracks everything and lets you categorize, QuickBooks Online can handle this, too.

The QuickBooks mobile app is a great way to track mileage. With it, you can also determine your quarterly tax liability and fill out the current IRS forms for making those payments. Explore the app’s time- and money-saving features, including automatic tax tracking, snap and store receipts, expense tracking, effortless invoicing, and more.