Recordkeeping for Auto Expenses and Mileage

If you use your car for business purposes, you may have learned that keeping track and properly logging the variety of expenses you incur for tax purposes is not always easy. Practically speaking, how often and how you choose to track expenses associated with the business use of your car depends on your personality; whether you are a meticulous note-taker or you simply abhor recordkeeping. However, by taking a few minutes each day in your car to log your expenses and mileage, you may be able to write-off a larger percentage of your business-related automobile costs.

Whether you buy or lease your vehicles, if you drive them for both personal-use and business-use, the IRS requires you to select ONE of the following 2 recordkeeping methods to write off the business-use portion of your vehicles. Each vehicle may individually use either of these 2 methods:

  • The “STANDARD MILEAGE METHOD” with 2 tracking options:

1) Track mileage daily all year = your annual totals

2) Track any average “90-day period” x 4 = annual totals

  • The “ACTUAL EXPENSE METHOD” by recording all vehicle operating expenses all year, then multiplying those totals by the mileage “business-use percentage” Actual expenses include: gas, oil, tires, repairs, maintenance, insurance, interest, registration fees, licenses, parking fees, tolls, and depreciation.

Listed below are a few ways to simplify the burden of logging your automobile expenses for tax purposes.

#1 ENVELOPE METHOD. The Envelope Method can help you keep track of both MILEAGE and EXPENSES at the same time. Keep in mind, however, that only one method may be used on your return at tax time. Here’s how it works: Keep an envelope for each month of the year in the vehicle that you use for business. No matter who is driving the vehicle, they can record accurate mileage or expenses and put the receipts in the envelope pocket for documentation. On the front of the envelope, make columns with these headings: Date, Destination, Purpose of Trip, and Trip Mileage. Each year you are required to record the odometer reading for each business vehicle on January 1st and December 31st. These numbers can be recorded on the first and last envelopes used each year for each vehicle.

If you want easy documentation for BOTH of these odometer readings, simply get your oil changed on December 31st each year. The sales receipt will record your Ending Odometer reading on the last day of the year, which can also serve as the Beginning Odometer reading for the first day of the New Year.

#2 THERE’S AN APP FOR THAT. There are several mileage tracker apps that have recently been released for all kinds of smartphones. A new app for the iPhone, automilez™, now generates mileage logs for you after each trip. It’s a GPS mileage logging and online log management service, so it measures your mileage for you; you just have to say what it’s for. If you use the pre-selected categories, it will even calculate the total tax deduction for the trip. The app will even email you the data. If you think this might be for you, it is available at no charge in the Apple store.

Another app that is available for the iPhone, as well as Google Android smartphones, is called MileBug. While Milebug isn’t free like automilez™, the app costs $1.99, it does have a solid following of 120,000 users. Milebug features include detailed reporting that shows totals by business and vehicle. Users can e-mail HTML and Excel-compatible reports. The mileage tracker is able to keep tabs on mileage for multiple businesses and multiple vehicles, and keep a running total of deductions with each addition to the user’s trip log.

#3 ON THE WEB. If you want more functionality, or you don’t have a smartphone, you can keep track of your mileage online using Logbook. Logbook is a web application that allows you to track and store mileage online. Logbook often has 30-day free trials, but it is currently available for $36 a year.

#4 VEHICLE GPS SYSTEMS. There are many vehicle GPS systems, such as ones by Garmin, that try to minimize the hassle of recordkeeping. All you simply have to do is turn on your GPS when you drive. These systems are then connected to your PC where your mileage logbook will automatically be downloaded. Many of these systems take the log file and turn it into a complete overview of your driven routes. They can calculate reimbursements, give you a PDF formatted mileage logbook, complete with driven miles, start and stop destinations, dates, and other information you need for proper documentation.

***Please note that you must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Generally, this is a minimum of 3 years from the date you file your return.***