How to Track Mileage for Taxes

July, 03 2023 by Steve Banner, EA, MBA

First of all, what does mileage have to do with taxes? Well, quite a lot, as it turns out.

The tax code says that anyone who runs a business, whether large or small, is entitled to deduct “ordinary and necessary¹” expenses from their business income when calculating their taxes. The actual expenses that can be deducted by a given taxpayer depend heavily on the nature of their business. For example, a self-employed plumber will be able to deduct the cost of pipes and other materials, while a contract advertising copywriter working from a home office will quite likely be able to deduct the costs of membership in professional marketing organizations and subscriptions to business databases. Although the nature of what is an ordinary and necessary expense for the above two businesses will be quite different from one another, there will also be some common ground. For example, both business owners are likely to need to do some driving in the course of their work, and thus, they will have mileage expenses that they can deduct.

Fortunately for our two business owners, the IRS makes the situation simple by allowing them to base the calculation of their deduction on a standard rate per mile. For the first half of 2022, this rate was 58.5 cents per mile, and it was 62.5 cents per mile for the year's second half. So it should be pretty simple, right? Grab a calculator, and they’re good to go!

However, like so many things in life (and in the tax world), it’s not as simple as it looks. All miles are not created equal. Taxpayers can only deduct the miles that are related to their business. And it often comes as a surprise to many taxpayers that their commuting expenses are not deductible.

For example, let’s illustrate this point by looking at the trips that our plumber took yesterday in his work truck when he drove to his current job site, picked up lunch, and then visited another two locations to provide estimates for plumbing services:
 

Although our plumber drove 76 miles in his work truck, he cannot include the (20 + 25 =) 45 miles for the commuting trips from and to his home. Nor can he include the 6 miles that he drove for personal purposes to buy lunch. Thus, he can only record (76 – 20 – 25 – 6 =) 25 business miles for the day. (He must not follow the questionable logic of a former acquaintance of mine who placed a magnetic sign on the door of his pick-up truck advertising his electrician business. Based on the advice of his barber’s neighbor’s brother-in-law, he decided that from this point onwards, 100% of his mileage was deductible under the heading of advertising, even if he was simply picking up his children from school.)

The tax code will likely allow the plumber to claim those 25 miles for the day as a business expense because the expenses related to the driving of those 25 miles are “ordinary” because a plumber can be expected to drive as part of his daily work. The expenses are also “necessary” because the plumber needs to be physically present at his customers’ locations, and he needs a vehicle to carry his equipment, tools, and supplies with him.

But just like all other taxpayers who wish to claim mileage expenses, the plumber is strongly advised to keep contemporaneous records of his driving that state the purpose and location of each trip as well as the miles traveled. For this purpose, many taxpayers use a written journal or logbook that they keep in the vehicle. A number of software applications that use a smartphone, tablet, or laptop are also available for the same purpose. However, no matter what type of record system a taxpayer uses, it should be available for review in case the IRS ever denies or raises questions about a mileage deduction claim.

¹ [1] 26 U.S. Code § 162 (a)