If you use your personal vehicle for business purposes, it's essential to keep track of your mileage. This is because you can deduct the cost of business mileage from your taxable income.
There are two ways to deduct business mileage: the standard mileage rate or the actual expense method. The standard mileage rate is a set amount per mile that the IRS allows you to deduct. The actual expense method allows you to deduct the actual cost of operating your vehicle for business purposes, including gas, oil, repairs, and insurance.
To deduct business mileage, you need to keep records of your mileage. You can do this using a mileage logbook, a mileage tracking app, or even a notebook. Your mileage log should include the following information:
- The date of each business trip
- The start and end mileage for each trip
- The purpose of each trip
If you use the actual expense method, you will need to keep track of your vehicle expenses. This includes receipts for gas, oil, repairs, and insurance.
Here are some of the benefits of keeping track of your business mileage:
- If you are a schedule C or sole proprietor business, this can increase your tax deductions. The standard mileage rate for 2023 is 65.5 cents per mile. This means you can deduct 65.5 cents for every mile you drive for business purposes. If you drive a lot of miles for business, this can save you a significant amount of money on your taxes.
- If you have employees, reimburse your employees to maximize tax-deductible expenses and truly track the cost of doing business when it comes to travel. If you, as an owner-employee, or your employees use your personal vehicle for business purposes, you can reimburse yourself and/or your employees for the cost of mileage. If you are an S-Corp owner-employee, make sure this is covered in your accountable plan with a detailed mileage reimbursement policy that allows employees to deduct a certain amount per mile for business travel.
- Track your business expenses. By keeping track of your business mileage, you can also better track other travel-related business expenses like parking, meals, etc as part of the expense reimbursement process.
If you are considering using an app to track this, check out this article from Forbes on the best mileage tracker apps: https://www.forbes.com/advisor/business/software/best-mileage-tracker-app/
If you have business vehicles and have questions about how to appropriately classify any related expenses related to them, please reach out to us on our "contact us" page.