For the self-employed, tracking miles driven for business can generate a significant reduction in taxes. Unless your actual auto expenses are a better deduction, but I’ll leave that debate for another day.
Capturing business mileage requires you to be proactive, detail-oriented, and a self-starter. Thank goodness freelancers and entrepreneurs all have these qualities.
There are two primary ways to track mileage – odometer readings and tracking apps. You’ll find articles and CPAs swearing that you need to track the odometer readings for each trip to log business mileage properly. However, the majority of mileage tracking apps don’t use your odometer readings to calculate distance. They use GPS driving data recorded by your phone.
Now it’s true you have to give the beginning of the year odometer reading and the end of the year reading, but if the mileage apps’ marketing is correct, you don’t need the odometer readings for each trip. Either method will provide the distance traveled. Additionally, you will need to record the purpose of the trip—for example, a client meeting or business event.
I’m a pen and paper notebook gal myself for mileage tracking, but I have some Luddite tendencies. If you’re the type that’s more “with-it” and find swiping on apps second nature, there are plenty of options for mileage tracking apps. The Quickbooks Online app will manage your mileage tracking if you already use it for your business accounting. There are others like MileIQ and Everlance for a not-even-close-to-exhaustive list of mileage tracking apps. Many business accounting software has this feature integrated into their systems. The primary maintenance is to review the driving records and indicate if the trip was personal or business (and provide a description).
I’m undecided as to which method is best; however, the tracking apps require less effort to provide the data needed for your tax return. This may be a case of don’t do like Sabina; do it the better way.