How to Properly Track Your Business Mileage
Claiming auto expenses or business mileage can yield a significant deduction on your tax return, but are you documenting it properly? This particular type of deduction is one of several that has the potential for abuse and is scrutinized carefully by taxing authorities. Even if the amount reported is accurate, the size of the deduction can trigger a red flag for an audit. Retaining the proper documentation gives you the ability to substantiate what you claimed and make audits run much more smoothly. Here are some things to consider when it comes to tracking mileage.
There are two different methods for the auto deduction. The first method is calculating how many business miles you drove for the year multiplied by the current-year mileage rate, which is 54 cents per mile for 2016. The second method is totaling your auto expenses for the year and multiplying it by the percentage of the time you drove your vehicle for business purposes. Auto expenses include, but are not limited to, fuel, repairs, maintenance, and depreciation. Regardless of what method you choose, you have to know how many business miles you drove for the year as well as total miles.
Total miles. Ensure you record your odometer reading at the beginning and end of the year so you can calculate total miles driven for the year. You can simply write it down and keep in a secure place, record it in a spreadsheet, or use a mileage tracking app on your mobile device.
Paper tracking. It is still acceptable to use a paper mileage log to record your travels. You can purchase one at most office supply stores. Keep it in your vehicle with a pen or pencil and write down your mileage as you go from place to place. Write down the date and purpose of the trip. For personal miles, you can simply notate “personal”. For business miles, best practice is to be as specific as possible. Example: “Met John Doe from Acme Corporation at Starbucks for consultation.”
Spreadsheet tracking. Similar to paper tracking, you can also use a spreadsheet to record mileage and trip details. The benefit of using a spreadsheet is the ability to add up mileage quickly and accurately.
Mileage apps. Many people are now using mileage apps. Click HERE for a list of various apps that perform this task. Carefully review the features of each app to ensure it will perform the tasks you want it to and that its degree of automation is to your liking.
Keeping receipts. If you opt to deduct actual expenses, keep your receipts. The IRS does accept scanned documents; keeping paper receipts is no longer an absolute requirement.
S Corp filers. If you file as an S Corp, taking the mileage deduction is not an option. You can deduct actual auto expenses as long as the vehicle is registered in the company’s name. If the vehicle is registered in your name, you may put an arrangement in place where the company can reimburse you for mileage. Make sure, however, that you have this arrangement well-documented in your corporate records and that reimbursement payments are clearly delineated in the company’s financial records. And remember, you still have to keep a mileage log. For additional information on this, click HERE for a great article.