QuickBooks Online New Feature – Mileage Tracking

Many of my clients who use QuickBooks Online received some good news recently. Intuit announced that their Mileage Tracker, previously available only to users of QuickBooks Self-Employed, will be rolled out to all versions of QuickBooks Online.

In light of this news, I thought it would be a good opportunity to discuss the rules for deducting business auto expenses.

When are business auto expenses deductible?

Many small business owners use a vehicle for business, but unless you drive for work a lot, it’s easy to forget about the many trips you take that might qualify for a tax deduction. Those trips might be for travel between offices, to a customer’s premises, picking up supplies or running other errands for your business, meeting clients for lunch or coffee, scouting locations for a photoshoot, or traveling to and from the airport for a business trip.

The only miles that don’t count are those driven for personal purposes. This includes miles driven while commuting between your home and your regular place of business, as the IRS considers these costs to be personal commuting expenses.

How to deduct business auto expenses

If you have a vehicle that’s used only for business, you can simply deduct the full cost of owning and operating that vehicle for the year as a business expense. It gets a little trickier if you drive your personal vehicle for business. In that case, you have two options for deducting the business portion of your costs.

Standard mileage rate

Multiply the miles driven for business during the year by a standard mileage rate. For 2019, the standard mileage rate is $0.58 per mile. The IRS hasn’t released the standard mileage rate for 2020 yet, but when it does, you’ll likely find it included in this chart.

For example, if you drove 1,000 miles for business in 2019, your deduction under the standard mileage rate would be $580 ($0.58 x 1,000).

Actual expense method

Track the actual costs of operating the vehicle for the year, including gas, oil, repairs, tires, insurance, registration fees, and lease payments. Multiply those expenses by the percentage of miles driven for business.

For example, if you drove 10,000 miles total in 2019, and 1,000 of those miles were for business, your percentage would be 10%. If the total cost of owning and operating the car in 2019 was $9,000, your deduction would be $900 ($9,000 x 10%).

How to track business miles

Whether you use the standard mileage rate or the actual expense method to calculate your business auto deduction, you’re required to track your business miles for the year. In the past, business owners had to maintain detailed logs of their business miles or try to reconstruct the miles driven using their calendars. Now, technology makes tracking those miles easy. There are several apps available, but users of QuickBooks Online will likely want to use the built-in mileage tracker.

Using the mileage tracker is easy if you already have the QuickBooks app installed on your phone. You’ll simply open the app, tap the mileage tab, make sure auto-tracking is turned on, and add your vehicle.

Whenever you drive (as long as your phone is in the car), the app will automatically track any trip you take, including starting and stopping locations and miles driven. Later, you can categorize your trip as business or personal by swiping left for business miles. If you classify the trip as business, you can also describe the purpose of your trip. The app can also store your most common trips for the future so you don’t need to enter them each time.

If you forget your phone at home one day, you can manually add a trip. At tax time, you’ll have all of the details necessary to claim your mileage deduction

Deducting business miles can give you a nice write-off at tax time, but think twice before claiming miles you can’t document. If you’re audited, the IRS will want to see your record of dates, destinations, and the purpose of your trip. Without that information, the auditor could deny your deduction, and you’ll wind up owing back taxes, penalties, and interest.

Tracking every drive used to be a tedious process when done with pen and paper. Thankfully, technology makes it easier than ever to take advantage of every available tax deduction.

Are you interested in learning more about QuickBooks Online? Schedule a discovery call with me!