You visit 10 clients in one day in six different towns and all your appointments are back-to-back. By the end of the day, you realize that you scribbled some mileage on a McDonald’s napkin but forgot to mark down which client trip the mileage goes with. And, in your rush, you notice that you completely forgot to log several trips altogether. You know that the IRS will need details of your travel to be compliant for a deduction; however, tracking all those details consistently and accurately can be difficult, time consuming and arduous. But it doesn’t have to be.
What Makes an IRS-Compliant Mileage Log?
If you’re self-employed, tracking mileage is huge because it’s one of your largest tax deductions. In 2018, the standard mileage rate for the cost of operating your vehicle for business use is 54.5 cents per mile (up one cent from the rate for 2017). The IRS clearly states that when you travel between your place of business, whether that is a home office or an office based elsewhere, you must keep records of all the expenses you have. You can use a log, diary, notebook, app, spreadsheet or any other written record to keep track of your expenses.
Elements of a Standard Mileage Log
When it comes to mileage, many people make the mistake of documenting too little information. The IRS clearly lays out the required elements of a standard mileage log:
- Date (including year)
- Destination (address of customer or client)
- Purpose of trip
- Odometer Reading: Start
- Odometer Reading: Finish
- Total mileage
- Any related extra business expenses such as tolls or parking
Considerations for Tracking Mileage
While you might be doing a great job tracking the basic mileage to and from job locations or between an office and a customer location, did you know qualified mileage also includes travel between your office (including a home office) and another office location, such as a brick-and-mortar store? It also includes travel for business-related errands, such as buying supplies or picking up an order, traveling to and from the airport, driving to temporary job sites (lasting less than one year) and going to and from meetings with clients that include entertainment such as dinner.
You cannot make estimates, which means your miles each day need to be complete, accurate and substantiated. While you are allowed to maintain a handwritten log, they are prone to human errors, such as leaving off the client name or destination address. If you are audited, the IRS might disallow your entire log due to these innocent mistakes. You also have to delineate between personal and business miles if you use the same vehicle for both purposes.
Other Vehicle Costs You Can Deduct
The first year you put a vehicle in use for your business, you must use the standard mileage rate method of tax deduction. In later years, you can continue to use that rate or use another calculation method, called the actual expenses method. Each has special rules and you should refer to IRS publication 463 for details.
Other eligible vehicle expenses you should keep records for include:
- State and local personal property tax statements
- License tab fees
- Interest on car loans
- Sales taxes from the purchase of the vehicle
- Casualty or theft losses
If you use a vehicle for business more than 50 percent of the time, you also are eligible to make annual depreciation deductions.
Save as much documentation as possible, including receipts, sales invoices, license tab renewal forms and tax statements. With a product like QuickBooks Self-Employed, you can take a photo of your receipts and attach them to your expenses, along with managing your mileage. This makes for an easy upload during tax time without the hassle of holding onto your receipts all year long.
How to Record Your Mileage
There are several mileage tracking apps on the market; however, the mileage tracking feature within QuickBooks Self-Employed automatically tracks your mileage and integrates it with your other deductions. It enables you to categorize your miles based on business or personal trips, and it doesn’t drain your cellphone battery.
By using an automatic tracking tool, you can potentially save thousands in what would have otherwise been lost or forgotten deductions.If you plan to deduct your mileage on your taxes, you must be organized, consistent and detailed. You don’t want to invalidate your log by missing a piece of information. If you use an app that automatically tracks your mileage, you are more likely to have all the details necessary to make your deduction.