If you have a business with a delivery person or a rideshare driver, you know how important the vehicle is to your business. As long as they’re driving, they’re accruing miles, whether it’s for a vehicle or an e-bike. Fortunately, this is a cost you can deduct from your taxes. Yes, while preparing business reports – you are allowed to keep and represent the mileage data.

Those entitled to a mileage deduction need to maintain meticulous records throughout the year to maximize their deduction. Independent contractors have a difficult time staying on top of their game because of the complexity of the work. Fortunately, there are many solutions available to aid them. Being a small business owner, you need to use financial reporting software to manage all your finance in one place.

8 Easy and simple steps by which you can log mileage

While there are ample benefits of using free accounting software for business, today, in this blog post, we will talk about how to log mileage for taxes in 8 easy steps.

1. Determine your eligibility for mileage compensation

A taxpayer may claim a mileage deduction for commuting between the office and a worksite, between the office and the second place of business or driving to and from business-related errands and appointments.

So, you need to make sure that your business or your employee comes under the eligibility criteria for the same. Also, if you are eligible, don’t forget that you can always use cloud based accounting software to go paperless, and using the same, you can bill your clients anywhere at any time.

To claim the mileage deduction, you must follow one of the two options. For the standard deduction to apply, you must maintain a track of the number of miles you drive for work.

You must save all receipts for costs incurred while driving to and from work for the actual expenditure technique to work. Use the best billing software for small business by which you can record the actual expenditure on the work.

2. Select a calculation method

Select a calculation method

There are two ways to account for the number of miles a taxpayer may claim:

To take advantage of the normal mileage deduction, all you need to do is keep track of the miles you travel.  All receipts and other essential documents about driving costs must be kept for the total vehicle expense deduction. 

There are only two methods to keep track of tax-deductible miles. Mileage can always be done in print if you’re a pen and paper old schooler. The IRS mandates the following points be included in your mileage logs:

  • Date as of the beginning of time
  • Point of departure (destination)
  • Purpose / Reason
  • End Mileage
  • The total number of Miles traveled

Please keep track of the mileage on your work car before and after you utilize it for business purposes and present it in business reports. You may then deduct the end odometer reading from the starting odometer reading to determine how many miles you drove that day.

If you need a template, you may use a mileage logbook or a spreadsheet to keep track of your travel expenses. Make sure it has a place for other charges like tolls and tickets since they may also be deducted. For your safety, we don’t encourage using this way of logging. Instead, we suggest you save your data to a digital platform.

Alternatively, you may monitor your business miles from the beginning using financial reporting software or thorough free accounting software for business. 

3. When the tax year begins, make a note of your odometer reading

A taxpayer is required by the Internal Revenue Service (IRS) to submit a mileage report detailing how far they drove their car throughout the tax year with other business reports. Form 2106 will collect all of the relevant mileage information. 

As a result, taxpayers must keep track of the mileage on their cars at the start of the tax year using cloud based accounting software. For the year 2021, the normal mileage deduction will be 56 cents per mile.

As long as the car isn’t brand new, please keep track of the mileage from when you get it.

4. Keep a driver’s Log (if needed)

Choosing the normal mileage deduction necessitates that you maintain a diary of your driving distances. This is how the IRS puts it:

The taxpayer must note the odometer reading, the trip’s purpose, the starting and terminating locations, and the date before beginning any journey.

A trip’s total distance may be calculated by writing down the end odometer reading and subtracting it from the start or can be done using the best billing software for small business.

5. Maintain a receipts log (if needed)

Maintain a Receipts Log

The mileage log is not required if you choose the total expenditure deduction. Keep a copy of necessary receipts and paperwork as a backup as a part of your business reports. The date, price amount, and description of goods or services requested must be included in every document. 

Does your invoicing solution help record travel expenses?

6. Every year, do recording keeping of miles

The taxpayer should note the final odometer reading after the tax year using financial reporting software. At the beginning of the year, the odometer reading is combined with this number to arrive at the overall number of miles traveled throughout the year.

7. Record the number of miles you’ve driven on your tax return

If you decide to go with the real spending option, you’ll have to sort the receipts by category, such as fuel, oil, repairs, insurance, car rentals, and depreciation. If you have all such data but don’t want to give you too much time to prepare such data, you can use free accounting software for business.

8. Retaining the records

Retaining the Records

For a minimum of three years, you must save any documents related to a mileage deduction. And keeping paper records is a daunting task. We strongly prefer to use cloud based accounting software or financial reporting software.

If the IRS asks for proof of the mileage deduction, the taxpayer should create a duplicate of the documents and keep one for their records, just in case.

Make a fresh log for each tax year to keep track of everything using the best billing software for small business.

Also Read: Which Business Reports Are Important for Taxation?

In conclusion

So, keeping records related to mileage is not a tough task when using financial reporting software. 

If you fall into such a category where you need to keep records of your mileage in your business, then go for a computerized method. To have a free demo of Moon Invoice’s cloud based accounting software, contact us at support@mooninvoice.com or +1-805-491-9393.

FAQ’s