When you own a business, you’re essentially on the hook for all expenses associated with running it. Fortunately, the IRS lets you deduct some of those costs from your taxes, including the use of a car for business purposes. If driving is essential to your business, it’s important to learn how to track mileage so you can take full advantage of that deduction.
What Miles Are Deductible for Business?
According to the IRS, miles driven to grow or run your business may be deductible. Some examples of deductible business trips include:
- Traveling to a client meeting
- Going to an office supply store
- Running business-related errands, like going to the bank
You can’t write off all miles driven for your business. For instance, the IRS will not allow you to deduct mileage or expenses associated with your normal commute.
Options for Deducting Miles
You have a couple options for deducting miles, including the actual vehicle expenses deduction and the standard mileage deduction (which requires you to keep a mileage log). Let’s look at each one separately.
Actual Vehicle Expenses Deduction
Actual vehicle expenses are the costs you incur to use the car for business purposes. These costs can include:
- Gas and oil
- Maintenance and repairs
- Depreciation (if you own the vehicle)
- Interest on a car loan (partial deduction if used for business purposes)
- Lease payments (if you’re leasing the vehicle)
To establish how much you can deduct, you must calculate the percentage of miles driven for business versus personal purposes. For example, if you drove 50,000 total miles, and 25,000 of those miles were driven to conduct business, you could write off 50% of your car-related expenses. The remaining 50% of the costs were incurred while taking care of personal matters and are therefore not deductible.
Standard Mileage Deduction
The standard mileage deduction allows you to write off business-related miles driven based on the rate established by the IRS each year. Here’s how the deduction amount has fluctuated throughout the past decade:
|Year||Deduction Amount Per Mile (in Cents)|
|2011 (July through December)
2011 (January through June)
To claim the standard mileage deduction, you must meet the following criteria:
- You own or lease the vehicle.
- You use fewer than five cars in your business.
- You only use the straight-line depreciation method for your car(s).
In addition, you can’t have claimed:
- A special depreciation allowance or Section 179 deduction on the vehicle.
- The actual expenses deduction after 1997 for a leased car.
If you own the car, you must choose the standard mileage deduction for the first year you use the vehicle for business. In subsequent years, you can opt for either the standard mileage or actual expenses method. However, if you lease the car and choose to take the standard mileage deduction for the first year of your lease, you must stick with that method throughout your entire lease (including renewals).
If you qualify to take either deduction, you should calculate both options and choose the method that gives you the biggest tax break.
You can deduct tolls and parking fees paid no matter which option you take.
How To Track Miles With a Log
You could get audited by the IRS at any time, so it’s important to have all of your tax-related documentation in order. For example, to substantiate your standard mileage deduction claim, you may need to show an auditor your mileage log. Here are the key steps to help you track your mileage.
Decide How To Log Your Miles
If you do everything electronically, you may want to log your miles on a spreadsheet. But if using pen and paper feels more natural, you might want to keep a notebook in the car specifically to track your mileage.
Set Up Your Log
To make the tracking process effective and efficient, set up your log in advance. Doing so is simple. Just create columns for all the information below that the IRS requires:
- Destination (for example, client’s office, bank, supply store, etc.)
- Reason for Traveling (meet with a supplier, deposit a check, ship finished goods, etc.)
- Beginning Odometer Reading (when you depart)
- Ending Odometer Reading (when you return)
- Total Miles Driven
- Expenses (tolls, gas, oil, etc.)
Then, every time you drive for business, fill in a line on your log.
Remember To Fill Out Your Log
As you may expect, your mileage log won’t do you any good if you don’t keep it up to date. As you go about your day, it can be easy to get distracted and forget to track your miles. If you find yourself not logging business-related driving, leave a reminder either as a Google Calendar notification, for example, or where you’re sure to physically see it, like on your glove box or inside your trunk.
Use an App
If you run your business and life from your cellphone, you may want to track mileage with an app. App capabilities vary but may include tracking your miles automatically, calculating your deduction, and maintaining IRS-appropriate records. While you’ll want to keep tabs on what the app is doing, it could be helpful if you frequently forget to use your notebook or spreadsheet-based log.
There are several mileage tracking apps on the market, including Hurdlr, Everlance, TripLog, and MileIQ.
Frequently Asked Questions (FAQs)
What is the standard mileage deduction for 2021?
The standard mileage deduction gets set each year by the IRS. In 2021, it’s 56 cents per mile.
Who is eligible for the mileage deduction?
Business owners who drive for business-related matters may be eligible to take the mileage deduction. However, they must meet several criteria to qualify, such as owning or leasing their car, driving fewer than five cars for business, using the straight-line depreciation method on their vehicles, and more.