The first work week of 2023 is in the books. How many miles did you drive for business purposes?
If you're using your personal vehicle to conduct business you need to know.
And if the number is to satisfy an Internal Revenue Service examiner's question about your mileage deduction, you need to be exact. The IRS can disallow questionable guesstimates, meaning your tax deduction could end up being zero. The U.S. Tax Court has backed up the agency when taxpayers don't keep adequate records.
To help you avoid that unwanted tax reversal, here are some do's and don'ts when it comes to making IRS-acceptable business mileage claims.
How much to deduct: Let's start with your deduction options.
Tracking your mileage and claiming those distances based on the annually adjusted standard optional per-mile rate is once choice. Or you can avoid mileage tracking and calculate the actual costs involved with the business use of your car.
You can read more about the two business mileage tax deduction options in my post that compares actual and standard claims.
Your ultimate choice, like every other tax decision, depends on your personal situation. You obviously want to use the one that will give you more tax savings.
Unless, of course, convenience is more important to you. That's the motivation for a lot of taxpayers (including me) who use their cars for business.
In late December, the IRS announced the standard optional per-mile rates taxpayers can use in 2023. It covered medical trips, moving (for specific filers), and charitable driving, as well at the business mileage rate. For business travel, this year it's 65.5 cents per mile.
That's up 3 cents from the last half of 2022. The new 65.5 cents business rate also is this weekend's By the Numbers figure.
Recordkeeping is key: If you deduct business transportation (or other) expenses, you must be able to prove certain elements of expense. The instruction to keep adequate records comes directly from IRS Publication 463, Travel, Gift, and Car Expenses.
The reason benefits both you and the IRS. When you keep timely and accurate records, the substantiation will show the IRS, if it audits your filing, that the claims are legitimate.
What are adequate records? You must generally prepare a written record for it to be considered adequate. This is because written evidence is more reliable than oral evidence alone.
Keep the proof of your travel expenses in an account book, diary, log, statement of expense, trip sheets, or similar record. A record kept on a computer, also is considered an adequate record.
I personally like a small notebook that I keep in my car, making it handy to jot down the IRS required travel information. I've also learned that pencil — I like the once the mechanical ones where the you twist it to expose the lead, no sharpener needed — works best for me. Pens tend to have issues when left, thanks to Texas' extremely varying weather, in very hot or cold cars.
Timely kept records: You should record the tax-deductible business miles you drove at or near the time of the relevant travel. This contemporaneous logging has more value than a statement prepared later when your recollection is not as precise.
I get it. I use online mapping, too. But I do so before I hit the road to a business meeting. It shows me various ways to get to the work-related appointment.
Then I jot down the exact business travel data in my previously mentioned car notebook. Those miles show any deviation from the mapped amount, such as a detour I had to take due to road work or traffic.
Many folks, however, are more digitally inclined. Hey, whatever works. If you want to use an app to track your business travel, you have lots of options. You can check out some app options and ratings in these reviews from MUO, The Penny Hoarder, and Fit Small Business.
The key is to track your miles accurately and consistently, regardless of methodology.
Other recorded transit details: In addition to the correct mileage, the IRS requires you be able to show some other details on the work-related drive. This includes —
- Date of your business trip,
- Your starting point,
- Your destination,
- Purpose of your trip,
- Vehicle's starting mileage,
- Vehicle's ending mileage, and
- Tolls and other trip-related costs.
I also like to do the math (starting odometer reading mins ending reading) right there on in the notebook when I get back to my home office to show that business trip's total round-trip mileage.
Note annual miles, too: There's no rule that you record your odometer reading on the first and last day of each year. But's a good idea.
First, getting in that habit reminds you to note the standard mileage rate for the new year. Jot that dashboard number down in your mileage log diary or whatever recordkeeping method you use.
I also take a smartphone photo of my odometer reading. It's date stamped, and I mail it to myself to keep as a part of my overall digital business tax records. Below is my Chevy's odometer reading on Jan. 1, 2023.
Second, when on Dec. 31 you note that odometer reading, you're gathering info to help you answer a couple of questions the IRS asks if you file Schedule C.
Part IV of this tax return form for sole proprietors wants to know, as the image below shows, Information on Your Vehicle.
That includes, among other things, the amount of various driving you did (noted by the red star I, not the IRS, added) during the tax year.
It's easier to answer that form's query, and full claim all the business travel tax breaks for which you qualify, if you keep good, records, including ones for the use of your car.
You also might find these items of interest:
- Make the most of tax-deductible medical miles
- The importance of good, and separate, business records
- What are ordinary and necessary business expenses? It depends