How to Track Auto Expenses for your Small Business

taxes Jan 01, 2020

If you drive your personal car for your small business, you can deduct vehicle expenses in one of two ways: actual expenses or the standard mileage rate.

So which way is better for you? As always, it depends, so let's take a look so you can make a decision that's right for you.

Standard Mileage Rate

Each year the IRS sets the standard mileage rate and you take a mileage deduction based on the number of business miles driven. Business Miles X Standard Mileage Rate.

You must keep track of how many miles you drive for business AND the total miles you drive. Other pertinent information is the date of the trip, the destination and business purpose. 

If you choose the standard mileage rate, you cannot deduct actual car operating expense. That means you can't deduct gas, repairs, DMV payments, oil changes, etc. These expenses are already factored into the standard mileage rate. In 2022, the rate is 58.5 cents/mile. It adds up quick! (2021 rate is 56 cents/mile.)

So how do you calculate actual expenses?

Actual expenses are exactly what it sounds like, actual car operating expenses. This method requires A LOT more record keeping but can result in a larger deduction. If you use this method, you must keep very detailed records of the cost you incur for you car during the year such as: 

  • Gas and oil
  • Repairs and maintenance
  • Depreciation of your original vehicle and improvements
  • Car repair tools
  • License fees
  • Parking fees for business trips
  • Registration fees
  • Tires
  • Insurance
  • Car washing
  • Lease payments

So can you switch between the standard mileage rate and actual expenses?

If you use actual expenses in the first year, you are stuck with it. However, if you start with the standard mileage rate you can switch in later years. In the first year you put your vehicle into service for your business, it may be wise to track both and see which with grant a larger deduction. Just keep in mind the detailed records that must be kept!

There are different rules for leased vehicles. You should consult with your tax professional for guidance.

Important Notes

It's worth noting that no matter the method you use, you can always deduct parking fees, meters and toll roads if in connection with business travel.

Standard mileage rate or the actual expense method both require you to keep a detailed mileage log. Your mileage log must include the starting mileage on your vehicle's odometer at the beginning of the year and its ending mileage at the conclusion of the year. There is no getting around that requirement. Below are a few automatic mileage trackers that make keeping a mileage log a breeze!

QuickBooks Online - If you are already using QBO for your business, you can add the app to your phone and set up the mileage tracker. 

MileIQ - This app is strictly for tracking miles.

TaxBot - This app tracks your expenses and mileage. It's a great app to use in conjuction with HoneyBook or Dubsado if you are a Sole Prop and not quite ready for QuickBooks yet.

 

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