Staying on top of your mileage tracking game can sometimes be a daunting task – this is true whether you’re self-employed, work for or run a small business, or even if you work for a larger enterprise company.
On this page, we’ll break down everything you need to know to make sure your business tax returns are optimized and you get the most out of your tax deductions. If you need to know how best to keep tabs on key benefits related to mileage tracking, read on.
What Qualifies as Business Mileage?
Starting off simple, it is important to know what exactly qualifies as business mileage, as writing off mileage on taxes can sometimes be tricky when considering all the different activities you might use your vehicle for.
Here’s an overview of what counts:
- Trips from your office or place of work to meet with clients
- Travel between different places of work, for example between various branches or outlets
- Errands that relate to your work
- Attending conferences or events in general related to your job
- Business lunches or other meet-ups that relate to work
- Commuting between your house and a permanent place of work is not worthy of a business mileage deduction, though if you are commuting to a temporary workplace such as a regular client or a courthouse if you’re a lawyer, these trips do qualify.
- If your tax home is your permanent place of residence, where you head off from daily, these trips also count as business trips.
How Does Business Mileage Work?
Now that we’ve covered exactly what can be claimed as business mileage, it is also important to clarify that part of this equation is accounting for other mileage you do, namely, the personal mileage you do outside of work.
This isn’t just important because of the commuting the majority of people do while self-employed, but because the IRS tends to view anything less than 10% of the total mileage you do as something of a red flag. As we’re sure you’re aware – it’s best to keep the taxman as happy as possible! 🙂
Now that we’ve covered all bases relating to recording and understanding business mileage, let’s examine the calculations needed to make that happen.
How to Calculate Mileage for Taxes
Most self-employed workers qualify for their mileage-related business expenses by using the standard mileage rate, which is set yearly by the IRS and is 65.5 cents per mile driven in 2023. This rate factors in the total cost involved in the operation of a vehicle, incorporating both fixed and variable costs across the market.
Using this rate, the calculation becomes a relatively trivial matter – you simply need to multiply the amount of business mileage you’ve done by the rate, and presto! To elucidate things more clearly, let’s take an example:
Shane works for a law firm as a criminal defense attorney, and he does a lot of business mileage between various clients and the office. In total, Shane does around 33,000 miles a year – often visiting clients outside of his metropolitan area for many different reasons.
Using the standard mileage rate, he qualifies for $21,615 in tax deductions, providing of course that his mileage log satisfies the IRS’s needs.
Calculating for Mileage Reimbursement Purposes
Many employers simply use the 2023 IRS mileage rate, which is the same as the previous 65.5 cents per mile driven we mentioned earlier under the standard mileage rate. The only difference in this scenario is that employees need to provide their mileage logs to their employers, not the IRS.
There are also many other scenarios when it comes to mileage reimbursement, including:
- a fixed car allowance
- a custom cost-per-mile rate (may be the same as the standard mileage rate)
- and FAVR (Fixed And Variable Rate)
Sometimes employees drive their own vehicles, and other times a company provides fleet vehicles for their workers.
Ultimately, reimbursement plans for a given employee are always decided by the employer. For more information, check out our page dedicated to mileage reimbursement.
How to Keep Business Mileage Records
There are a number of ways to keep records of your mileage, with many people choosing to do this through either Excel or – in the case of some – through a paper-based mileage log.
However, the vast majority of modern-day independent contractors and self-employed persons keep business mileage records through a mileage tracker such as our app – we recommend that you do the same.
Why Should You Consider Using a Mileage Tracker App?
Whether you need to keep a mileage log for your employer(s) or for the IRS directly, using a mileage tracker app is the best way to do it. The reason why is really quite simple: you’re going to save yourself time and or money. In fact, many employers make using a mileage expense tracking app mandatory – apps like MileageWise that come complete with a team’s dashboard are the best way to optimize workflows efficiently.
Though we certainly encourage you to do as much research on the best mileage tracker app topic as possible before delving into your own bank account and setting up a payment on a per month basis, we want to highlight a few reasons why our software is among the best out there – it’s tough finding a piece of software that meets the IRS’s every expectation.
- A retrospective mileage log: In case you’ve forgotten to record your trips in the past, MileageWise is here to help you out. This feature is one you cannot find anywhere else, and comes in real handy during an IRS audit, saving you thousands of dollars worth of fines.
- A range of auto-tracking modes: With the MileageWise app you can track your miles via vehicle movement tracking, a Plug’N’Go setup, or even Bluetooth tracking. We are one of few if not the only provider on the market who offers such a range of tracking methods.
- Mass distance calculation: MileageWise’s application calculates door-to-door distances between your destinations, which helps create a perfect picture of the mileage you’re doing while simultaneously avoiding some of the pitfalls that come with more traditional GPS tracking.
- An IRS-proof mileage log: We are proud to present this feature – no other provider on the market can guarantee an IRS-proof mileage log, which we make possible through our AdWise Wizard technology – a feature that examines and alters any logical conflicts you might have in your logs so that when you submit your records to the IRS, you know you’re covered.