Accounting for Mileage: What you Need to Know

I’ve got a friend who didn’t realize that the Indianapolis 500—arguably one of the most well-known car races in the world—meant that the cars were going around the track 500 times for a total of 500 laps.

Of course, this race isn’t indicative of the way we drive in real life, but it did remind me just how important the mileage topic is when it comes to accounting for it in your books. I also recently attended the National Association of Taxpayer Professionals’ conference and learned quite a bit about this topic and others, which I’ll talk about in future blogs.

Business owners—from the solopreneur to the largest size business—can realize some tax savings when it comes to accounting for the mileage you drive, although the rules can be a bit confusing. Here’s what you need to know. Accounting Near Me - Accountant Near Me - Accountant Charlotte, NC - Accounting Greater Charlotte Area NC + Beyond

How Deductible Mileage Works

The first thing to know is when you can deduct mileage, but the topic actually starts with the car. According to the IRS, you can deduct the costs of operating an automobile for business, charitable, medical, or moving purposes.

The standard mileage rate for business-related travel is based on an annual study of fixed and variable costs of operating a vehicle. Costs include depreciation, insurance, repairs, tires, maintenance, gas, and oil. You’ll have the option of claiming deductions based on actual costs of operating the car versus the standard mileage rate:

• A taxpayer may not use the standard mileage rate for a car after claiming accelerated depreciation, including a Sec. 179 expense for that car.

• The standard mileage rate is not available to fleet owners who have more than four vehicles used simultaneously.

These rules are nicely summarized by the IRS, and here are some of the more relevant rules:

·      If you claim the standard mileage rate instead of actual expenses, you can also deduct parking fees and tolls.

·      If you claim actual expenses, you can claim a depreciation deduction, unless you lease your car.

·      If you claim any deduction for the business use of a car, you must provide information about the use of the car, such as date placed in service (see below), mileage—total, business, commuting, and other personal mileage—after-work use, and use of other vehicles.

Logging Your Mileage 

What this means is that you need to keep a log of the total miles driven if you choose the standard mileage deduction. I’ve seen every incarnation of the way our clients keep their mileage, from a handwritten log in a small ring notebook they keep in their car, to using an app that connects to QuickBooks Online or the mileage tracker in QuickBooks Online.

Certum Solutions recommends using the built-in QuickBooks Online mileage tracker because it’s easy to use, you can set it up so it automatically tracks your miles and it’s available on the mobile app. Once you’ve accounted for your mileage, Certum will ensure the transactions are accounted for in your books.

One thing to keep in mind is that you’ll need to keep up with tracking your mileage every time you drive. Let’s say you’re doing this by hand. At the start of any business-related trip, record the odometer reading and list the purpose, starting location, ending location, and date of the trip. In addition, based on when you place the car in service—which includes buying or leasing a car—you’ll need to “close out” the previous car with the final odometer reading on the date you dispensed with the car. This information is important, so if you need help, by all means let us know.

2023 IRS Mileage Rates

In most years, the IRS regularly raises the mileage rate and usually announces the new rate in December. As of Jan. 1, 2023, the standard mileage rates for the use of a car, including vans, pickups or panel trucks was:

• 65.5 cents per mile driven for business use, up 3 cents from the midyear increase setting the rate for the second half of 2022.

• 22 cents per mile driven for medical or moving purposes for qualified active-duty members of the Armed Forces, consistent with the increased mid-year rate set for the second half of 2022.

• 14 cents per mile driven in service of charitable organizations. This rate is set by statute and remains unchanged from 2022.

The last two bullets, of course, are for individuals vs. businesses, but in any case, it depends on whether you met the threshold on using your standard deduction vs. itemizing deductions. 

These rates apply to electric and hybrid-electric automobiles, as well as gasoline and diesel-powered vehicles. Again, the IRS will most likely raise the per-mile rate, so if you need help figuring that out, ask Certum for help.

Employer-related mileage expenses

Employer-related benefits are outlined by the IRS for in-depth reference, but in a nutshell, they fall under “fringe benefits.” The gist is that you can reimburse an employee for business use of a personal vehicle, and under certain conditions, you may use the rate under the cents-per-mile rule to value the personal use of a vehicle you provide to an employee. The rate is the same at 65. 5 cents per mile. 

At Certum Solutions, we abide with employee reimbursement for mileage if a car is driven for business purposes. It just makes good sense; we would not want any employee to be liable for any out-of-pocket business expenses.

Accounting for mileage isn’t difficult; it’s just a bit complicated. Again, Certum Solutions is here to help you sort out your own situation, so contact us today if we can help.

Now on to watching the next road race …. Accounting Near Me - Accountant Near Me - Accountant Charlotte, NC - Accounting Greater Charlotte Area NC + Beyond