How to Deduct Auto Expenses & Mileage Trackers for Entrepreneurs

by Cynthia Franklin

Business use of a personal vehicle is a tax deduction that many entrepreneurs overlook. Don’t miss out!

There are two ways to deduct your auto expenses: the standard mileage rate of 62.5 cents per mile in the last half of 2022, OR a percentage of your actual auto expenses. Typically, you can choose the method that provides a better deduction (as long as you choose standard the first year you use the vehicle for business). However, many business owners don’t realize that a written log of your mileage is required regardless of which method you choose.

In order to deduct your auto expenses, there are several items you must track, including:

Year, make, and model of your vehicle and date placed in service
Purchase price of your vehicle including sales tax
Total miles driven for the year (business and personal)
Business miles driven
Total auto expenses (gas, oil changes, etc.)

The written log can be a spreadsheet, a notebook, or a photo of your odometer. However, the easiest and most effective way to keep track is to use a mileage tracking app. These apps can use your GPS location to determine mileage and help you distinguish business from personal trips.

What counts as business mileage?

Anytime you drive your vehicle for business, you can deduct the mileage with one large exception. You can NOT deduct regular commuting miles (from your home to your office for each work day).

So what types of trips are considered deductible?

Meeting with a client, colleague, or employee to discuss business
Traveling to a conference
Making a sales call
Picking up supplies or shipping products
Delivering goods or services

Your trips must be considered ordinary and necessary, and can not include large personal detours (those miles must be subtracted).

How to Calculate Your Deduction

If you plan to take the standard mileage deduction, you’ll multiply your business miles by 56 cents (in 2021).

If you plan to use actual auto expenses, you divide business miles by total miles to get a business use percentage (%). You’ll apply this percentage to your auto expenses and deduct the business portion.

Both of these calculations are completed on your 1040 Schedule C if you are a sole-proprietor. If you are an S-Corp or partnership, you will calculate the amount and reimburse yourself for the expense.

Keeping Track of Expenses and Mileage

You’ll want to run all of your automotive expenses through your business bank account and classified as Auto Expenses.

What kind of auto expenses can you include?

Purchase price of vehicle (depreciated over time)
Lease Payments
Interest Expense on Vehicle
Fuel
Oil Changes
Repairs & Maintenance
Car Washes
Etc.

For mileage, you’ll likely want to use a business mileage tracking app such as:

Quickbooks Online – included for our bookkeeping clients
MileageWise
MileIQ
SherpaShare
TripLog
Hurdlr
Everlance

How We Can Help

By hiring an experienced professional bookkeeper, you can ensure that you’ll maximize your deductions and ensure that everything is in order before it’s time to file your taxes.

Book a free discovery call today to learn more.