If you want to deduct your car expenses for tax purposes, then you absolutely need to keep an up-to-date mileage log.
There are two ways to write off your vehicle for business purposes.
- The first is the mileage method where you keep track of your business miles and then apply the IRS mileage rate to those business miles and that equals your tax deduction.
- The second way to write off your vehicle expenses is by using the actual expenses. This means you get to take a portion of your actual expenses like fuel, insurance, repairs and maintenance, etc. and deduct a portion of those expenses in the percentage of business miles to overall total miles on that vehicle.
In order to take either of the deductions listed above, you must have records of your miles driven. It is really easy to figure out the total miles driven for the year if you take an odometer reading at the beginning of the year and the ending of the year. This will give you the total miles driven for the year.
Where you need to keep more detailed records is in the business miles that you drove. You will need to document what the miles that were for each business trip, where you were going, and what was the business purpose of that trip.
Remember, commuting miles do not count as business miles driven.
If you are taking actual expenses on your vehicle, then you also need to keep things like receipts, repair records, and other forms of documentation. Without an actual receipt, you don’t want to be convincing the IRS that an expense from your personal account was for business purposes. Check out this discussion on why it is so important to separate out your business and personal expenses here.
If you were to get audited, you are responsible for proving to the IRS that the deductions claimed on your tax return are legitimate business expenses. It is also not a bad idea to keep receipts like oil change receipts, where your odometer reading is shown, to help substantiate the miles that you are claiming, regardless of whether you are using the actual method or mileage method to write off your expenses.
You can keep a mileage log on paper, on a notebook that you keep in your car, using an Excel worksheet, or there are plenty of apps out there you can put on your phone to help you keep track of your mileage.
If you keep on top of it throughout the year, it is so much easier than trying to replicate these types of support months or even years later.