Most business owners, sales people, and some employees should keep track of their business miles for tax purposes. In my experience, most do not keep very good records, and scramble to come up with an amount to prepare their taxes.
The best practice is to keep a vehicle mileage log. It doesn’t have to be fancy, as it can be written in a notebook, but a better option is Microsoft Excel, which helps with the calculations. An example of a good log would show the following:
- Beginning of year odometer reading
- Columns to show the date, where traveled, description, and the business miles driven
- A total at the bottom for business miles
- End of year odometer reading
Instead of keeping track of everywhere you have driven, for business and personally, you can easily figure your overall miles by subtracting your beginning odometer reading from the ending reading. Subtract your total business miles from the difference to obtain the personal amount.
What’s the benefit of all this extra work? Actually there are several. First, if you are ever audited, you will need to prove the business use of your vehicle. Second, it can reduce your taxes! For example, instead of deducting your actual vehicle business expenses, you may be eligible to use the alternative mileage method. By multiplying your business miles by the mileage rate, currently at 57.5 cents a mile, you can deduct this amount if it is greater than your actual expenses, as long as you have used the mileage method for the first year.