What Is Total Mileage and How Is It Calculated for Taxes?

Tracking total mileage is essential for tax purposes, especially for those using their vehicle for business. The IRS allows deductions or reimbursements based on miles driven, which can lead to significant savings if recorded accurately. Failing to track mileage properly can result in lost deductions or penalties during an audit.

Understanding how to calculate and document mileage correctly ensures compliance with tax regulations and maximizes potential benefits.

Business Purposes and Personal Travel

The IRS distinguishes between business and personal mileage, as only business-related travel qualifies for tax deductions. Business mileage includes trips for work-related activities such as meeting clients, traveling between job sites, or attending conferences. However, commuting from home to a regular workplace does not qualify. IRS Publication 463 specifies that daily travel between a taxpayer’s home and main place of business is considered a personal expense and is not deductible.

For self-employed individuals and small business owners, properly categorizing mileage is essential. If a vehicle is used for both business and personal purposes, only the business-related portion can be deducted. For example, if 60% of a vehicle’s total annual mileage is for business, then 60% of eligible expenses—such as fuel, maintenance, and depreciation—can be deducted under the actual expense method. Alternatively, taxpayers can use the standard mileage rate, which for 2024 is set at 67 cents per mile. This rate covers fuel, insurance, and wear and tear, simplifying recordkeeping.

Employees who drive for work-related purposes but are not reimbursed by their employer cannot deduct mileage on their federal tax return due to changes introduced by the Tax Cuts and Jobs Act of 2017. However, some states allow deductions for unreimbursed employee expenses, making it important to check local tax laws. Businesses that reimburse employees for mileage must ensure their rates align with IRS guidelines. If an employer reimburses at a rate higher than the IRS standard, the excess amount is considered taxable income for the employee.

Calculating Distances

Accurately determining mileage for tax purposes requires a consistent method. Digital mapping tools like Google Maps or GPS-based mileage tracking apps provide precise distance calculations. These tools help ensure consistency and prevent discrepancies that could raise red flags during an IRS audit. When using a mapping service, it’s important to document the exact starting and ending addresses, as well as any necessary business-related stops.

Mileage tracking apps such as MileIQ, Everlance, and TripLog automate the process by recording trips in real time using GPS. These apps categorize trips as business or personal and generate reports for tax filings. While the IRS does not mandate specific tools, it requires mileage records to be accurate and recorded as close to the time of travel as possible. Estimating or reconstructing mileage at year-end can lead to inconsistencies, making it harder to substantiate deductions if questioned.

For those who prefer manual tracking, maintaining a mileage log is another option. A compliant log should include the date of each trip, the purpose of travel, starting and ending locations, and the total miles driven. A common mistake is rounding mileage figures or failing to differentiate between direct routes and detours. The IRS expects mileage calculations to reflect actual routes taken, so personal stops should not be included in business mileage totals.

Documenting Odometer Readings

Keeping a record of odometer readings strengthens mileage documentation. While the IRS does not explicitly require odometer readings for mileage deductions, they serve as supporting evidence in case of an audit. Recording the starting and ending mileage for the year helps verify the proportion of business use. Without this documentation, proving the legitimacy of deductions can become more difficult.

A reliable way to track odometer readings is to log them at the beginning and end of each tax year, as well as at regular intervals. Many businesses and self-employed individuals also record odometer readings during oil changes, inspections, or other routine maintenance, as service receipts often include mileage data. These third-party records add credibility to mileage claims.

Digital tools can simplify this process by allowing users to input and store odometer readings electronically. Some mileage tracking apps prompt users to enter their readings periodically, ensuring consistency. For those using accounting software, integrating odometer logs with financial records can streamline tax preparation and reduce the risk of errors. Maintaining organized records not only supports tax deductions but also helps track vehicle depreciation for those using the actual expense method.

Reimbursement vs. Deductions

Understanding the difference between reimbursements and deductions is important when determining how vehicle-related expenses impact taxes. Reimbursement occurs when an employer compensates an employee for miles driven while conducting business on the company’s behalf. This is typically done using an accountable plan, which ensures that payments are not counted as taxable income as long as employees provide appropriate documentation, such as mileage logs and receipts. If an employer does not follow an accountable plan, any reimbursements may be treated as wages, subjecting them to income tax and payroll withholdings.

Businesses have flexibility in setting reimbursement rates, but most align with the IRS standard mileage rate to ensure compliance. If a company reimburses employees at a lower rate, workers may not deduct the difference on their federal tax return due to the suspension of unreimbursed employee expenses under the Tax Cuts and Jobs Act. However, certain states, such as California, require employers to fully cover business-related vehicle expenses, meaning employees could challenge insufficient reimbursements under labor laws.