How to Track Mileage for Work & Why You Should
Business owners need to know how to track mileage for work trips for tax season and reimbursement purposes. Read our blog to learn how to track mileage!
There’s no denying there are several advantages to tracking mileage for business. Yet, there’s also no sugar-coating that it can take up quite a bit of time to do so manually.
We get it — as a small business owner, you already have a never-ending to-do list. Unless you’re tracking mileage for compensation purposes, working out how to track mileage for work trips may not feel like a high-priority task. However, if you don’t know how to track business miles properly, you may be missing out on valuable tax deductions.
To help you get started, the team at Roll by ADP™ has put together this handy guide on how to track business mileage and why you should.
Any small business with employees using vehicles for work purposes should know how to track mileage. Why? Because it’s an invaluable way to maximize tax deductions.
Did you know that, even when employees use their personal vehicles, you can still claim a tax deduction for their work-related mileage? The IRS allows businesses to deduct a standard mileage rate for each business mile driven, as well as related expenses like gas, maintenance, and insurance. However, your records must be accurate, which makes learning how to track miles accurately vital.
It’s not all about your taxes, though. Understanding how to track miles for work will also help you increase efficiencies in other areas:
- Operational Efficiency – Pinpoint areas where costs can be reduced by identifying inefficient routes and unnecessary trips.
- Employee Performance – Gain insight into employee productivity by identifying unnecessary stops and unauthorized mileage.
- Customer Transparency – A detailed log of mileage and time spent on the road makes it easier to break down costs when you’re billing clients.
- Invoicing Accuracy – Learning how to add up mileage properly makes tallying invoices quicker and easier.
- Admin Efficiency – Mileage logs reduce (and potentially eliminate) time and resources spent on manual tracking and accounting paperwork.
Types of Driving Expenses
There are two ways to deduct vehicle-related business expenses. You can either deduct actual expenses or use the IRS standard mileage rate.
But let’s not jump too far ahead of ourselves. Before we delve into the specifics of how to track mileage for business purposes using either method, it helps to know what is classified as a legitimate business expense and what isn’t.
Legitimate vs. Non-Legitimate Driving Expenses
Small business owners often find that the IRS definition of a legitimate business mileage expense doesn’t quite match their expectations. For example, miles driven to get to and from work are not covered, so if you choose to reimburse yourself/your employees for that, it won’t be a tax-deductible expense.
Here is a more complete list of acceptable expenses so you know how to add up mileage.
IRS-Approved Business Mileage Expenses
- Driving from one work location to another
- Driving to a temporary work location
- Driving to business meetings, seminars, or conferences
- Driving to business-related training sessions
- Driving to meet with clients or potential customers
- Driving to meet with a vendor or supplier
- Transporting business equipment, like tools and supplies
- Delivering business goods or materials
- Driving to and from the airport or train station for business travel
Non-Legitimate Business Mileage Expenses
- Commuting to and from work
- Driving between a primary and second job
- Driving to or from a volunteer activity for a non-profit organization
- Making detours for personal errands or to grab a coffee, etc.
- Driving to and from the airport or train station for a personal vacation
- Driving to and from a personal appointment or event
- Driving to or from a school-related activity for a child
- Driving to and from a personal shopping trip or fitness class, etc.
Now that you’re familiar with the specifics of tracking mileage for work, let’s look at the two different methods you can use in more detail.
IRS Standard Mileage Rate vs. Deducting Actual Expenses
You need to choose which method you’ll use before you start tracking mileage for business because the data and calculations you’ll need to make will be different for each.
IRS Standard Mileage Rate
The standard mileage rate for 2023 is 65.5 cents per business-related mile, meaning you can claim back the dollar amount for 65.5 times your total business mileage. To utilize the standard mileage rate, you must:
- Not operate more than five vehicles at the same time
- Use this rate in the first year each vehicle is available for business use (you can switch to the actual expense method after that if you wish)
- Use the standard mileage rate for the entire lease period once you have begun
You can read the complete list of standard mileage rate rules on the IRS website.
Advantages of using the standard mileage rate include simplicity, as there’s less paperwork involved, and your mileage is easier to verify. However, you lose control over expenses like gas, insurance, repairs, and wear and tear on the vehicle, which can lower your overall tax reduction.
Deducting Actual Expenses
At face value, learning how to track mileage for work by adding up your actual expenses seems pretty straightforward. All you have to do is keep a tally of all the costs incurred while driving for business purposes. These may include:
- Registration fees
- Toll fees
- Parking fees
- Maintenance and repair
- Loan interest or lease costs
Then, you work out the percentage split between personal and business use and write off the applicable portion. For example, if you drive 25,000 miles per year, and 10,000 of them are for business, you can write off 40% of your total vehicle expenses.
The pros of utilizing the actual expense method for tracking mileage for work is that you’ll likely receive a higher deduction, especially if you or your employees drive vehicles that are costly to maintain and repair. And it’s a more flexible system because you can claim for a larger variety of expenses.
However, there’s a lot more paperwork, receipt management, and manual tracking involved. Plus, actual expenses are more difficult to verify, so you’ll need to keep thorough records and documentation.
How to Track Mileage for Work
Accurate records of all vehicle-related expenses are a must to ensure you can claim the maximum deduction. If you're unsure about exactly what you need to do, it’s a good idea to consult with a payroll and tax specialist before you get started.
Once you’re an expert in how to track mileage and expenses, you’ll need to choose between manual tracking and using an app. Whichever method you use, you’ll need to keep careful records of:
- Vehicle information (make, model, year, vehicle identification number, etc.)
- The dates of expenses
- The amount of each expense
- The number of miles driven
- The purpose of travel
Manually Tracking Mileage
Manual tracking involves keeping a written log of each business-related trip. Here's a step-by-step guide detailing how to track mileage for work using a manual method:
- Create a mileage log – You can use a notebook, a spreadsheet, or an online template. If it’s just you using the log, any format is fine. However, if designed to be used by multiple people, a cloud-based record and check sheet is usually best to encourage uniform use.
- Record trip details – For every business-related journey, you’ll need to note the date, start and end location, the number of miles driven, and the purpose of the trip (site visit, meeting a client, etc.).
- Record odometer readings – To accurately calculate your deductions when tax season comes around, you’ll need to know each vehicle’s total mileage at the start and end of the year and how the difference is split between personal and business miles.
- Keep receipts – If you’re going the actual expenses route of reporting, you’ll need physical receipts for everything you claim is a business expense, including gas, repairs, maintenance, insurance documentation, tollway fees, parking receipts, etc.
- Update regularly – Manual calculations are open to human error, and it’s easy to slip up and forget to make entries — especially when your business is busy, and you have a million other things on your mind. So, a weekly check to ensure accuracy is strongly advised.
- Make calculations – You’ll need to add up every expense and make sure it can be cross-checked with the relevant receipts and documentation. If you’ve decided to use the IRS standard mileage rate, you’ll need to add up the total number of business miles driven during the year and multiply that by the current rate to determine your potential tax deduction.
App tracking uses GPS technology to automatically track and calculate the distance driven for each business journey. Here's a step-by-step guide covering how to track mileage for work using an app:
- Download a mileage tracking app – There are several excellent options that you can download onto your smartphone or tablet, including the ADP-backed TripLog, which features a one-click-to-submit function that makes tax reimbursement a breeze.
- Set up your account – Input each vehicle’s information, including make, model, year, vehicle identification number (VIN), and current odometer reading.
- Record each trip – Launch the app at the beginning of every drive, remembering to enter the trip purpose. The app will automatically track your route using GPS and calculate the number of miles driven.
- Categorize each trip – At the end of every drive, the app will prompt you to categorize the trip as business or personal and add notes or extra details.
- Keep receipts – You’ll need thorough and detailed expense receipts for any costs you plan to claim back via actual expense reporting.
- Export your data – When tax season arrives, export your trip data to a spreadsheet to calculate your total business mileage and rectify your receipts against the relevant entries.
The beauty of digital tracking is that everything is recorded. So, in addition to maximizing your tax deductions by providing journey details and timestamps with pinpoint accuracy, you can eliminate detours and unauthorized personal trips to boost employee accountability and productivity.
Roll Does More, So You Can Do Less
Looking for a comprehensive solution to help manage your business expenses? We can help!
At Roll, we understand that staying on top of administrative tasks can be challenging. That’s why we’ve developed a comprehensive payroll app for small business to help you get all the boring stuff done faster. No matter what your mileage is going towards, we can help you manage everything from contractor payroll to managing payroll for trucking companies.
When you sign up for a Roll account, our powerful tax and payroll tools can help you to categorize your expenses and generate tax reports that save you time and simplify your entire expense management process, so you can get back to growing your business and enjoying your free time.
Get started on the path to better expense management today by signing up for your free trial today!