Using your personal vehicle for work can cause the miles on your vehicle to stack up quickly. More mileage means more repairs, more gas and more frequent car maintenance, like oil changes. While you may need to pay for your vehicle’s maintenance out of your own pocket, you may be able to earn some of that money back through minimizing how much you owe in taxes. It’s important for small business owners to understand how to track mileage for taxes so you’re keeping as much money in your pocket as you can.

How to Claim Mileage on Your Taxes

There are a few different things to consider when it comes to tracking miles for your business, including defining what counts as business miles to using suggested mileage tracking apps. Here’s what you need to know about the mileage tax deduction and why you should always keep your gas receipts for taxes.

1. Understand ‘Ordinary and Necessary’ Business Expenses

Mileage is considered an “ordinary and necessary” business expense according to IRS Publication 535, which explains common expenses, what’s deductible and what’s not. Put simply, the IRS explains, “The costs of operating a car, truck, or other vehicle in your business are deductible.” The standard mileage rate, or how much mileage you can write off on your taxes, for 2023 is 65.5 cents per mile.

If your car is used exclusively for business, you can claim a deduction for all of your vehicle expenses. However, if you use your car for both business and personal purposes, “you must divide your expenses based on actual mileage” to take advantage of the mileage tax deduction. While there isn’t a limit to how many miles you can claim if you drive them for business, only certain types of trips count as business-related:

  • Driving between two different places of work
  • Driving from your home to a temporary place of work
  • Meeting clients and going on customer visits
  • Running business-related errands

Types of transportation that are not considered business-related include commuting from your home to your permanent place of work, carrying tools on a commute and displaying advertising on your car.

2. Choose the Standard Mileage or Actual Expenses Method

In figuring out the costs or miles put on your car for business use come tax time, you can use either the Standard Mileage method or Actual Expenses method. Make it a habit to know the mileage of your car from the start of the tax year. That’s right, you should head out to the garage to check the odometer on New Year’s Day. This is a method of deducting the number of miles you’ve put on your personal vehicle using the Standard Mileage Deduction method and often asked for by tax filing software. 

Standard Mileage is a simpler method in which you calculate the number of miles, while the Actual Expenses method requires you to track spending, keep your receipts and carefully remove deductions associated with your actual self-employed work. Expenses you can deduct under the Actual Expenses method include:

  • Depreciation
  • Lease payments
  • Gas and oil
  • Tires
  • Repairs
  • Insurance
  • Registration fees
  • Parking fees and tolls
  • Garage rent

3. Keep a Mileage Log for Taxes

Every trip you take on behalf of your business — ranging from heading to the fabric store for supplies to attending a crucial business conference — should be added to an electronic mileage log for taxes (and preferably kept on a cloud source for backup purposes). Having records to back up your claims reduces your risk of an IRS audit.

Create a Google Sheet or save an Excel worksheet on a cloud software. Be sure to track mileage from your trip, the date and the reason (i.e., restaurant opening, picking up supplies).

4. Use a Tax App

For any deductions, you must keep all records and receipts for at least three years from the date you file your tax return. Many tax apps are designed with small business owners in mind, especially if they’re tracking mileage for business. While there are a number of good tax apps out there, a couple tax and non-tax apps alike keep track of mileage, including Shoeboxed and Expensify. You can also just cut straight to mileage tracking with apps like MileIQ and Hurdlr. Either way, it’s an upgrade from the days of the storage cabinet.

Get the Right Coverage

Keep your business protected by making sure you are properly covered. Talk to your Farm Bureau agent about the right auto insurance coverage for your mileage and use. 

Want to learn more?

Contact a local FBFS agent or advisor for answers personalized to you.