As a small business owner, you are entitled to claim mileage deductions on your taxes if you use a vehicle for work, so long as you have an IRS-compliant mileage report. And the best way to maximize your mileage deductions is by using a mileage tracker.
To help you understand how this works, we have compiled a brief guide on mileage reimbursement for small businesses - and the importance of a mileage tracking app.
Small businesses enjoy many perks, such as SMB (small and medium business) loans, research grants, and government-backed contracts. In addition to these advantages, you are qualified for tax deductions if your business operates a vehicle for work purposes. Likewise, your employees can receive reimbursement for their car expenses.
Before you can claim deductions for your business, you must first choose a method to calculate your deductible expenses. The Internal Revenue Service recommends using an annually renewed standard mileage rate. But small business owners can also decide to use the actual expense method depending on which is more favorable.
The standard mileage rate is a fixed deductible amount per business mile traveled. Currently, the mileage rate stands at 62.5 cents per mile for each business trip. Let’s say your business car traveled 100 miles for work today, then your claimable deduction is 62.5 cents x 100 miles.
Note that not all mileage is valid for a deduction. The tracked miles for driving to deliver clients’ goods, going to the port to collect business deliveries, or traveling to meet with a salesperson are claimable. On the other hand, commuting from your house to a permanent place of work or taking a detour on your work trip to a restaurant is not considered for business mileage.
Instead of using a fixed rate, you can calculate the total expense for the operation of your car and multiply it by the percentage of business use to get the actual expense.
According to the IRS, your total expenses could include the following:
Suppose you drove 100 miles today - half for business use - and total expense equals $3000. Then, your actual expense is 50% of the miles driven x $3,000.
Small business owners can decide to use any of the deduction methods discussed above depending on which one brings the most significant cut on tax.
But before you can claim mileage deductions for your business, you need to submit a mileage log that complies with IRS standards. Your log should contain the date, location, and purpose of each recorded trip and the total number of driven miles. A contemporaneous (daily or weekly) recording of your business trips will keep your mileage log up-to-date.
If you reimburse your employees for car expenses, you must keep their mileage logs in case of a future audit. You have to ensure all the details inside the received mileage log are adequate and not guesstimated - otherwise, the IRS might forfeit your entire mileage reimbursement.
However, keeping an accurate mileage log for all your business trips can be a great hassle. Things could get more complicated when you have to do this daily using paper logbooks or spreadsheets. And while there is nothing wrong with the traditional paper and pen method, a mileage tracking app can help you get everything sorted quickly.
Human error in calculation and possible forgetfulness is one of the banes of an accurate mileage log. But thanks to rapid technological advancement, you can now keep a good record of your business miles using a mileage tracking app.
Mileage trackers are well-known for their ability to automate the usual repetitive processes that come with manual documentation of mileage details after each business trip. With the right tracking software, small business owners and employees can keep their mileage logs updated and retrieve them in a suitable format when needed.
Importantly, a mileage tracking app will help you maximize your tax deductions - and retain every possible cent you could have lost due to human errors.
All things said, you need to consider these features when choosing a small business mileage tracker:
Although there are many quality mileage trackers out there, some are cost ineffective for a small business. If you need a mileage tracking app that has all the required features and is still affordable, Mileafy should be your next go-to choice.
Mileafy is designed to automatically help you track your miles and keep standard logs that are always available on demand. If you would like to know more about our mileage tracking application, please contact [email protected]