How to Properly Track Miles for Taxes

Deducting the costs of using your vehicle for business is a way to lower your taxable income. For self-employed individuals, freelancers, and small business owners, the miles you drive can translate into tax savings. The Internal Revenue Service (IRS) provides guidelines for this deduction, but it requires careful record-keeping throughout the year to substantiate your claims.

Determining Your Deduction Method

Before you begin tracking mileage, you must understand the two methods the IRS allows for calculating your vehicle deduction: the Standard Mileage Rate and the Actual Expense Method. Your choice of method can impact your total deduction, and the decision made in the first year you use a car for business can affect your options in subsequent years.

The Standard Mileage Rate is a simplified approach using a predetermined rate per business mile. For the 2024 tax year, this rate is 67 cents per mile. This rate is designed to cover variable costs like gasoline and fixed costs like insurance and depreciation. If you choose this method, you cannot deduct these specific costs separately, though you can still deduct business-related parking fees and tolls. To use the standard rate for a car you own, you must select it in the first year the vehicle is used for business; in later years, you can switch between methods.

The Actual Expense Method can yield a larger deduction if your vehicle operating costs are high. This method involves deducting the business-use percentage of all your vehicle-related expenses. These costs include:

• Gas and oil changes
• Repairs and tires
• Insurance
• Registration fees
• Depreciation

For example, if you determine that 60% of your car’s use was for business, you can deduct 60% of its total operating costs. If you choose this method in the first year, you must continue to use it for that vehicle in all future years.

Required Information for Mileage Logs

Regardless of your chosen deduction method, the IRS requires you to maintain a detailed and contemporaneous mileage log to substantiate your deduction. This log is the primary evidence for your claims in an audit, and records must be created at or near the time of travel. Failure to keep adequate records can result in the disallowance of your vehicle expense deduction.

Your mileage log must contain the following for each business trip:

• The date of the trip
• Your starting point and destination
• The total distance of the trip, documented by starting and ending odometer readings
• The specific business purpose, such as “Meeting with client John Smith” or “Trip to office supply store”

It is important to distinguish between different types of mileage. Business mileage includes travel between workplaces, visiting clients, or running business errands. Commuting mileage, the travel between your home and your primary place of business, is a non-deductible personal expense. Personal mileage includes any other non-business travel, such as running personal errands or going on vacation. Your log should clearly separate these categories to accurately calculate your business-use percentage.

Methods for Tracking Mileage

You can use several methods to capture the required data for your mileage log, from traditional pen-and-paper to digital solutions. The key is to choose a system that you will use consistently throughout the year.

A manual paper log, kept in a small notebook in your vehicle’s glove compartment, is the most traditional method. While simple and inexpensive, it requires diligent manual entry for every trip and can be prone to errors or loss. You must remember to record all necessary details as it happens to maintain a contemporaneous record.

Digital spreadsheets offer a more organized way to maintain your mileage records but still rely on manual data entry. A more automated approach involves using a dedicated mileage tracking app on your smartphone. These applications often use GPS to automatically record your drives, allowing you to classify them as business or personal with a simple swipe.

Reporting Mileage on Your Tax Return

After the tax year ends and you have a complete mileage log, the final step is to report the information on your tax return. The specific forms you use will depend on your business structure and the deduction method you have chosen. The process involves transferring your summarized mileage data and calculated deduction to the correct schedules.

For most sole proprietors and single-member LLCs, vehicle expenses are reported on Schedule C (Form 1040), Profit or Loss from Business. If you use the standard mileage rate and are not required to file Form 4562 for any other reason, you will complete Part IV of Schedule C. This section asks for the date the vehicle was placed in service and the total miles driven for business, commuting, and other personal purposes.

If you use the actual expense method or are otherwise required to file Form 4562, Depreciation and Amortization, you will report your vehicle information in Part V of that form. This section requires a detailed breakdown of your total mileage. After completing Form 4562, the calculated deduction amount is then transferred to the appropriate line on your main business form, such as line 9 of Schedule C.