Making Your Mileage Matter
One of the most overlooked and under-captured expenses is vehicle mileage. In this discussion, I’ll show you how to easily master your mileage to maximize your tax savings from this deductible expense.
I hear the expression over and over…”I hate keeping track of my mileage.” And trust me, I can relate. I am not the type of person who likes jotting down everything I do. After all, I’m an entrepreneur. And we entrepreneurs have much bigger things to deal with than writing down a few miles right? Well here’s the problem. The year is pretty long. And if we take that attitude every day for a year, that could be a lot of wasted tax savings. For example, if I drive just 5 miles a day for business over the course of 250 different business days, I’d be leaving $725 of deductible expense on the table (using the 2019 mileage rate of 58 cents per mile). OUCH! But don’t worry…I’m here to help. Let’s take a little time to understand what the IRS wants from us and then we can cover easy ways to get them what they want.
WHAT MILEAGE IS DEDUCTIBLE?
The first thing we need to understand is what mileage is deductible. The short answer is any miles you drive for business (charity also counts by the way). However, we need to make sure we are clear that we are not talking about driving from our home to our office and back. That is considered commuting and it’s not deductible (although we are gonna want to know that total as well). Now if you office out of your home, that’s a different story. Traveling for business from your home office is deductible.
Here are some examples of things you should be recording whether you office at home or elsewhere.
- Buying office supplies
- Making bank deposits
- Attending training events
- Attending networking events
- Cultivating client relationships
WHAT ARE THE REQUIREMENTS?
The IRS has pretty simple requirements when it comes to your mileage. First, you need to be able to justify the business nature of the mileage. Second, you need to keep a timely recording of the mileage. Don’t worry. You don’t need to track it every day to be considered timely. However, at a minimum, you should be tracking it every week. Both of these requirements point back to using some sort of a logbook.
As much as we may hate it, keeping a log of the mileage events really does help satisfy both the requirements. And when you start keeping that logbook, your mileage deduction is going to be rock solid. So now that we have that straight, let’s find a way to simplify
TOOLS TO MAKE IT EASIER
The good news is there are a lot of technological aides that can help make tracking mileage less “taxing.” Here are the basic tools I recommend to get the job done right and with as little effort as possible.
- The Log Book – I have done this many different ways…on paper at my desk, in a spreadsheet on my work computer, and even in spiral notebook in my car. This logbook is what you’ll keep as evidence if the IRS ever comes asking. And the total at the bottom of your log (along with your beginning mileage, ending mileage and commuting mileage) is what you’ll need to give a guy like me to prepare your tax return.
- The Online Map – One of the easiest and inexpensive ways to keep track of mileage is to map out some of your more basic business journeys. So if you typically visit the same bank location for deposits, capture the mileage in Google Maps or Mapquest. Then you’ll just need to annotate in your log that you made that particular trip and you’ll already have a guide for how far you went.
- The Mileage Tracking App – There are many different apps you can choose from with varying levels of features. “MileIQ” is a popular mileage app that actually doubles as a log. “MileBug” is pretty handy and will email you the reports you need to keep you straight. There are many choices. Just be careful when using GPS to track your mileage through an app. You’ll want to make sure that you have plenty of battery life because these apps can run it down when used frequently. However for people who are always in their cars (I’m talking to you realtors!) mileage apps can be a lifesaver.
Keeping track of your mileage is one of those activities all of us need to master if we want to stop leaving money on the table. The good news is that it doesn’t have to feel like pulling teeth to make it happen. Just try putting into place some of the things I mentioned and you’ll be surprised how much easier it becomes with a little habit building.