It is crucial for businesses to correctly track their business mileage as it could be very helpful in tax deductions. The IRS requires every business owner to keep specific and accurate information regarding business mileage deductions. Incorrect tracking of business mileage could, on the other hand, be a costly mistake. Our free mileage log templates will enable you to comply with all IRS regulations thus allowing you to legally and conveniently deduct business mileage expense.
Many business owners underestimate how beneficial it is to track their business mileage. Well, setting up the mileage tracking system could be a bit of a hassle, but once everything is in place, it becomes straightforward and benefits quickly pile up with time.
What kinds of trips are considered business trips?
The tax code specifies certain limitations on what you can claim as business mileage deductions. Any trip that is done for business purposes counts as a business trip. This could be a trip to pick up supplies from the vendors or a trip to meet new clients.
How to calculate mileage log deductions?
There are two methods of calculating mileage deductions.
The first method is the standard mileage rate, whereby the IRS sets a specific deduction per mile. The current (starting in 2018) IRS standard mileage rate is 54.5 cents per business mile.
The second method involves determining the percentage use of the vehicle for business purposes and multiplying by the total expenses from the use of the vehicle. Some of the costs that you may include are
- Lease payments
- Maintenance expenses
For instance, if you determine that 80% of the total mileage was for business purposes, and the total vehicle expenses added up to $5000, the deductible expense using the actual expense method would be $4000 (80% of $5000).
In the above example, if your total mileage for the year were 6,250 miles, the deductible amount would be $3406.26 with the standard rate method ( 6250 miles multiplied by 54.5 cents per mile). As you can see, the standard rate method is easier to work with, but the actual expense method would have allowed you to deduct an additional $593.75 legally. Such additional deductions tend to add up to huge figures over the years thereby making the one-time setup cost small in comparison.
Mandatory information in a mileage log sheet
For a mileage log sheet to be valid for IRS use, it must contain some details. Our free mileage log templates will help you track all the required information hassle-free. The IRS, as you would expect, will not just rely upon your word and will need some evidence of the business mileage. Your mileage log sheet must indicate the following
- Your mileage for trips
- The dates in which your business trips occurred
- The locations you drove to for business
- The business purpose for the trips
- The amounts of vehicle expenses
- Total mileage for the year
Mileage Log Templates (Excel)
Mileage Log Templates (Word)
Why you should keep a mileage log?
Mileage log records are necessary for any business that wants to make mileage deductions for tax purposes. Many business owners simply estimate their business mileage, but it is important to note that the IRS looks at mileage deductions closely and you could be audited because of it. Tracking the miles is very important just in case of a potential IRS audit
Sole proprietors are likely to not document their mileage properly due to time and organization issues, and they are more likely to be audited as compared to other entities.
A mileage log provides adequate records for the amounts, dates, locations and business purposes which IRS uses as proof.
Common mistakes people make when keeping a mileage log
- Inaccurate mileage for business trips
- Failure to indicate dates for each business trip
- Failure to indicate locations and purpose of each trip
- Unreliable records for vehicle expenses
Making any of these mistakes can lead to loss of mileage deductions and can also attract accuracy-related penalties.
Mileage tracking tips
Record the mileage at the beginning of every year – on January 1st of every year, you should record the odometer reading as you will need that figure when calculating the total mileage for your annual tax return.
Record the mileage in real time – this helps in making sure that you keep accurate records and eliminates the risk of not recording at all. When you don’t have the mileage log with you, make a point of recording the mileage somewhere else.
Keep source documents that can verify business miles – when you don’t have any source documents for your business trips, note that down just in case you need to defend your log.
Calculate the mileage daily for accuracy and completeness.
Use maps as a backup – if you forget to record the mileage information, or if you lose the info, online maps can help you estimate the miles traveled.
Hold on to your mileage logs – the IRS recommends that you keep your mileage records for at least three years. Consider making digital versions of the logs for backup.
Have a copy of the log in your car – this helps you keep the necessary records in real time.