Most businesses make use of vehicles to fulfill several business needs. This inevitably leads to driving-related expenses. The IRS has laid down specific rules by which you can deduct some of these costs incurred from your taxable income and get some tax relief. However, the IRS does not merely take your word as granted but needs authentic mileage logs as a backup to your claims. Let us walk through as what can be deducted and how to you provide a validated proof of it.
What are the qualifying mileage deductions?
Not all your driving can be logged under mileage deductions. IRS has well-defined rules for qualifying business driving as mileage deductions. For instance, you cannot put your daily commutation to your workplace from home and vice versa as your qualifying mileage deductions. However, if you are traveling to any other business premise or destination for your business needs, you can pen them down as eligible for mileage deductions. According to IRS guidelines, any trip from your business premise for business related errands, business meals and entertainments, airport drives for business trips, odd jobs, customers visits, temporary job sites and even the drive you take to find new jobs.
Requirements for your mileage logs
Going by the rules of the IRS, you mileage log should have specific data points like
  • Date of your business trips
  • The purpose of the business trip
  • Information about your start and end destinations like a drive from your office to a client’s office.
  • The total number of miles covered
All required information is best collected as contemporaneous record i.e. you should record all information on a real-time basis after each drive or probably at the end of that day. In case you are using the vehicle for personal reasons as well, the IRS also looks into the cumulative miles you drove in a particular year which is deduced from the miles at the start of the year and the miles at the end of the year. From these, the IRS may want to know the total number of miles shown as business deductible, the miles used for commuting and finally personal driving to infer your business miles percentile.
Various ways of recording business mileage for taxes
Now that you know what records you need and when should you capture data, the next step is how to record them. You can do them in several ways since IRS just demands records but does not dictate your method of keeping them. Few of them are:
  • Manual Mileage log
The cheapest and the easiest way to record mileage log; all you need to do is manually enter all relevant data by hand in a paper mileage log. The downside is that you need to record data after every drive which might not be feasible. Moreover, you will have a huge manual calculation to do at the end of the year which might be problematic. There is also the fear of them getting lost, stolen or torn. This can cause problems as you must keep your records for seven years after filing your taxes.
  • Spreadsheet
Instead of a manual mileage log, you can enter data into a mileage log spreadsheet which is easily accessible to you on your Smartphones. This would not only make your calculations easier but would be far more secure than paper manual logs. Even here, you need to enter info on after every drive and it’s easy to miss on few entries leading to errors while you are doing your final calculations.
  • Mileage tracking apps
This is the most popular and the most convenient option that most people are opting for. They resolve all your tedious and cumbersome chores of recording data. Additionally, features like automatic tracking, standard reporting, security, etc. make your life hassle-free to a large extent. However, you must select the right app, need to have a Smartphone mandatorily and also need to be aware of the fact that your data could be sold to third party advertisers.
Bottom Line
Regardless of whichever method you adopt, you must be vigilant enough to capture all required data each time and correctly. The tax benefits that you get from it make the effort certainly worthwhile.