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!
By Roll by ADP on July 24, 2023
5 min readThere’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:
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
Non-Legitimate Business Mileage Expenses
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:
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:
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:
How to Track mileage for Reimbursement: Manual Method
For manual mileage tracking, create a detailed log using a notebook or spreadsheet, recording trip specifics like date, locations, miles, and purpose. Note odometer readings, keep receipts for expenses, and regularly update for accuracy. Calculate total expenses for potential tax deductions, considering the IRS standard mileage rate if applicable:
Mile-Tracking App
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:
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!