What is mileage tracking?
Mileage tracking is the practice of keeping a mileage log for a tax deduction or reimbursement. This includes business travel such as client meetings, business errands, or getting work supplies. All of these activities count as deductible mileage, or mileage one is able to track and expense.
Many employers will only provide reimbursement for employees who keep a mileage log. These logs can be kept using mileage tracking software then submitted to an employer for reimbursement or to get cash deducted from taxes after filing. Mileage tracking software is highly beneficial for employers to help accurately track employees’ miles and maintain proper accounting for the business. Self-employed individuals can also receive tax reimbursement for mileage if it is properly logged.
Failing to keep accurate mileage records can have severe consequences for businesses and individuals. The following are two major risks of inaccurate mileage tracking. Those who fail to submit accurate logs for year-end taxes risk getting audited by the IRS.
Types of deductible mileage
The Internal Revenue Service (IRS) allows individuals to deduct mileage for various purposes, including business, charity, medical, and even moving.
One’s regular work commute, however, is not tax-deductible. According to the IRS, one’s place of residency is a personal choice; therefore, individuals cannot deduct their normal work commute.
This means that any business travel from one’s house does not count, even if that individual engages in business via the phone or email during the commute. This changes, however, if a business makes their employees temporarily commute to a different location.
Below are some examples of deductible mileage drives:
- Visits to customers or clients
- Commuting between different offices, including temporary job locations
- Running errands or picking up business supplies
- Travel to and from airports for business trips
- Meals or entertainment for customers or clients
Benefits of mileage tracking
Keeping accurate mileage logs can ensure cost savings and remove the guesswork when filing taxes. Below are three of the best benefits of mileage tracking:
- Receive more tax deductions: Any miles that were driven for business, outside of one’s regular commute, are deductible and can be claimed. Deductions lower the amount of one’s taxable income, therefore reducing tax liability. Since miles driven for business are tax-deductible, individuals can keep mileage tracking logs and submit them to the IRS to help lower their taxable income during tax season.
- Maintain accurate logs: Consistent mileage tracking is the best way to ensure a mileage log remains accurate throughout the year. Although the IRS accepts various forms of mileage tracking, it is recommended that individuals also keep digital records.
- Collect employer reimbursement: Some companies have policies that cover reimbursement or allowances for work-related travel. Employers may reimburse mileage at a lower rate than the IRS standard mileage rate. In this case, employees can maximize their mileage reimbursement by claiming the difference between the IRS rate and company reimbursement when filing a deduction. Although some states require companies to provide reimbursement for mileage, not all employers are required to do so.
Basic elements of mileage tracking
The best way to ensure reimbursement or deduction is to track every mile. This means individuals should track mileage every time they drive for business. Keeping track of mileage separately for business purposes will make the process easier when it comes time to file taxes or request reimbursement.
Individuals who work for an employer should do mileage tracking for:
- Travel between office locations
- Travel to client meetings or events
- Commute from home to a temporary job location
- Airport travel for business-related trips
- Business errands
Self-employed individuals should do mileage tracking for:
- Home offices that qualify as one’s principal place of business, meaning self-employed individuals can claim deductions for travel to other offices or to clients
- Unemployed individuals can deduct travel miles when looking for a job in their current field, but not for miles traveled when looking for a job in a new industry
- Individuals who relocated at least 50 miles from work, and worked full-time at least 39 weeks in the last 12 months after their move, can claim a small deduction
- Those who drive for medical or charitable reasons may also qualify for small deductions
When not to track mileage
Not every mile driven during business hours is deductible or qualifies for reimbursement. Common activities, such as commuting or running personal errands, do not count as deductible miles.
Individuals likely do not need to do mileage tracking for the following reasons:
- The only business-related travel is commuting to work
- An individual works from home and doesn’t travel for business purposes
- Unemployed individuals who are not traveling to find work in their current industry
How to do mileage tracking for business
The IRS requires precise documentation of miles in order to receive a tax deduction or reimbursement. It is also important to keep detailed mileage records in the event of an audit.
This means detailed mileage tracking should always be kept to ensure accuracy.
Individuals can submit IRS form Schedule A (Form 1040 or 1040-SR) to claim deductions for mileage. Self-employed individuals can claim expenses on Schedule C.
Mileage tracking logs should always include the following information:
- Date and time of the trip
- Start point and destination
- Reason for travel
- Starting and ending mileage
- Additional costs, such as parking fees and tolls
Mileage tracking best practices
Although there are various ways to keep mileage records, some methods are more accurate and efficient. Mileage tracking is easier than ever before with the help of modern technology and mileage tracking best practices.
- Invest in mileage tracking software: With the help of mileage tracking software, businesses can track and manage business travel by employees for tax and reimbursement purposes. These systems can also be utilized by different departments to review and approve expenses.
- Use a mileage tracking app: Similar to software systems, mileage tracking apps are a convenient way for employees to track and submit business travel expenses. Mileage apps can automatically determine start and end locations based on the phone’s location.
- Create a company policy: Creating a company standard for mileage tracking is the best way to ensure accuracy across an entire organization. Employers should clearly communicate the exact method of mileage tracking, the company reimbursement rate, and specific deadlines to submit expenses.
Brittany K. King
Brittany K. King is a Content Marketing Manager at G2. She received her BA in English Language & Literature with a concentration in Writing from Pace University. Brittany’s expertise is in supporting G2 products and sellers, focusing specifically on Buyer Intent data and Review Generation. After 5pm, you can find Brittany listening to her extensive record collection, hanging with her dog and cats, or booking her next vacation.
