Business Mileage: 5 Common Questions Answered for Small Businesses

Source: GOFAR

For many small businesses, using a car for business purposes is a necessary expense.

As with other expenses, the Internal Revenue Service (IRS) has specific rules and regulations regarding business mileage. These strict guidelines specify what qualifies as business mileage, and how this mileage can be deducted on taxes.

The tax benefits of business mileage can be significant. The deduction can help you save money on your taxes and reduce your tax liability.

However, it’s important to remember that the deduction is only available if you keep accurate records of your business travels. This includes a detailed and accurate mileage log.

Here are answers to some common questions small businesses have about business mileage deductions.

1 – What Is Business Mileage and What Are the Tax Deductions Associated With It?

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GOFAR is the world’s top automatic mileage logbook

Business mileage is any travel done for business purposes. This can include travel to meetings, clients, suppliers, and any other business-related destination. It’s important to keep track of all business mileage, as this information can be used to claim a deduction on taxes.

The IRS allows businesses to deduct a certain amount of tax for each business mile driven. This is known as business mileage deduction, or simply mileage deduction. For instance, the standard mileage deduction set for 2022 was 58.5 cents per mile driven. This rate was increased to 62.5 cents for the final six months of 2022 due to an increase in gasoline prices.

The table below shows the standard mileage deduction rate the IRS has set since 2020.

YearStandard Mileage Rate For Business Use
202057.5 cents per mile
202156 cents per mile
2022 (January - June)58.5 cents per mile
2022 (July - December)62.5 cents per mile

Keep in mind that commuting miles are not considered business mileage and are not deductible. The IRS defines commuting as travel between a person’s home and their place of business. So, if you use your car to commute to and from work, those miles cannot be deducted.

However, if you have a home-based business, the IRS allows you to deduct your business mileage even if some of those miles are driven from your home to another work location or to see a client. This is typically the case when the IRS considers the home your tax home or principal place of business.

2 – How Do I Claim Mileage on My Taxes

IRS mileage log form template
Car Mileage Log

To claim business mileage on your taxes, you’ll need to keep a detailed and accurate record of all the miles you’ve driven for business purposes. The IRS requires you to keep track of your business miles using a mileage log.

A mileage log is simply a record of all the business miles you’ve driven, along with the date, time, and purpose of each trip. Many people choose to use a spreadsheet or an app to keep track of their mileage, but a paper log can work just as well.

You’ll be better served by using a mileage tracker app such as GOFAR to automatically track and log your trips. This is especially helpful if you drive for work daily and don’t want to miss out on unclaimed car expenses.

Once you’ve kept track of your business miles for the year, you can claim the deduction by including it on your tax return. The IRS allows you to either deduct your business mileage at the standard mileage rate, or by calculating the actual expenses associated with your business travel.

3 – What Are the Actual Expenses I Can Deduct?

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How To Track Mileage For Taxes

If you choose to calculate and deduct the actual expenses associated with your business travel, you’ll have to factor in expenses such as fuel, oil changes, vehicle maintenance, depreciation, and car insurance. Other expenses can include:

  • Tires
  • Repairs
  • Car washing expenses
  • Lease payments

You must, therefore, keep track of all the money you spend on your car for business purposes. Once you’ve calculated your total expenses, you can deduct them on your taxes.

Keep in mind that you can only deduct the percentage of those expenses used for business travel. For example, if you drove your car for business purposes 50% of the time, you can deduct 50% of your total car expenses.

You can find out the business percentage of your vehicle’s use by dividing the number of business miles documented in a year by the total miles you’ve driven for the same period. It’s this percentage that you then apply to the actual expenses of operating your vehicle.

4 – Should I Use the Standard Mileage Rate or Actual Expenses, or Can I Use Both?

business finance
How to Calculate Mileage for Taxes

You can only deduct one or the other — either your business mileage using the standard mileage rate, or your actual expenses. You cannot claim both on your taxes, so no matter which method you choose, you should keep records.

If you choose to use the standard mileage rate, you’ll need to multiply the sum of your business miles for the period by the given rate.

Should you choose to use actual expenses rather than the standard mileage rate, you’ll need to keep track of all the money you spend on your car for business purposes.

Before submitting either, you should try both the actual expense method and the standard mileage rate method to see which gives you the larger deduction. You can then deduct the amount that results in the greater tax savings.

Expert Tip: Choose which method you’d like to use and stick with it, since switching from the standard mileage rate to actual costs can be difficult. You may need to factor in depreciation, for instance. Also, the IRS requires taxpayers who’d like to use the standard mileage rate to do so in the first year their vehicles are available for business use.

5 – What if I Don’t Use My Car That Much for Business?

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GOFAR Celebrates International Women’s Day

The good news is that you can still deduct actual expenses or even standard mileage even if you use your car 50% or less for business. This may be the situation if you work from home.

If you lease a car for your business, you can still deduct your business mileage. You’ll need to keep track of the number of miles you’ve driven for business purposes, and you can either use the standard mileage rate or actual expenses.

Going the actual expenses route can enable you to deduct part of the lease payments you make on the vehicle. However, you may need to consult a tax professional to navigate the complicated rules meant to establish the depreciation (and value) of your leased car if you wish to claim it.

You may also deduct mileage for a non-company car provided you maintain the records for expenses incurred. This could be your parent’s car or a spouse’s. Substantial proof that you pay expenses such as insurance, maintenance, or gas needs to be maintained to support your business use case.

However, while it’s possible to claim business mileage when you don’t own the car, you’re not allowed to use depreciation as a business expense.

GOFAR mileage tracker

Best Practices for Keeping Track of Business Mileage

Remember, the IRS requires that you keep a detailed and accurate record of your business travel. This should include the date, time, and purpose of each trip.

You can’t simply estimate the number of miles you’ve driven for business purposes. Doing so can lead to disallowed deductions, thus subjecting your business to fines and penalties for underpaying taxes. So, you’ll need to produce your mileage log to claim your deductions if you’re audited by the IRS.

The best way to keep track of your business mileage is to use a mileage tracking app. This way, you can automatically track your mileage and not have to worry about keeping a log. An excellent solution is GOFAR, which is more than just an app. It consists of:

  • The GOFAR adapter
  • The GOFAR app
  • The GOFAR Ray (optional)

The GOFAR adapter is plugged into your car’s diagnostic port, then the vehicle’s data is sent to the GOFAR app on your phone. It’s on the app that you can track:

  • Trip durations
  • Trip distances
  • Trip expenses
  • Vehicle health
  • Vehicle performance

Since the GOFAR adapter is a leave-in device, it logs every trip your car makes, even if your phone battery dies. This ensures that you never lose out on automated mileage logging and reporting.

As for the optional GOFAR Ray, it comes with a movable adhesive patch that allows you to place it on your vehicle’s dash.

You’ll find the GOFAR Ray’s features handy since it saves your car’s diagnostic data in case the adapter fails to sync to your app. This data can be later synchronized to the app. The Ray also subtly indicates the efficiency of your driving via its LED lights.

Like Anthony, you can reap immense value when you opt for a GOFAR Mileage Tracker:

“Great device for keeping a log of your travels, works perfectly, and technical support is great. Definitely the best solution to keep track of travel and fuel spent.”

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