If you're a small business owner who's in the car a lot, you need to be savvy when it comes to tracking mileage. Why? For tax purposes of course! Here's a quick tutorial...
Mileage Rate - U.S.
In the United States, the Internal Revenue Service (IRS) is who sets the standard mileage rate. This number moves a little bit year to year, but in general stays roughly the same. Each year the IRS conducts study of the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas and oil. For tax year 2015, the standard mileage rate for business is $0.575 per mile. So for every mile you use your personal vehicle for business use, you'll be able to deduct $0.575. Small change, you say? Not over the long haul.
Kilometer Rate - Canada
In Canada, the mileage tracking rules a a little different. For starters, we're talking kilometers! Here's the breakdown, according to the Canadian Revenue Agency:
- $0.55 per kilometer for the first 5,000 kilometers driven
- $0.49 per kilometer driven after the 5,000 mark.
- In the Northwest Territories, Yukon, and Nunavut, there is an additional $0.04 per kilometer allowed for travel
Why Care about Kilometer and Mileage Tracking?
As mentioned, tracking the miles or kilometers you travel in your personal vehicle for business purposes is tax deductible! This will be an expense line item on your business' P&L statement. (Learn more about what a P&L statement is and how to read it.)
How to Track Kilometers or Miles
In the old days, most small business owners using their personal vehicle for business use would keep a little book in their car where they'd simply write down the miles according to the odometer. Then at a specific interval (weekly, monthly or quarterly), they'd enter the data into their accounting system. But these days, there are a slew of mobile apps that can measure your travel via GPS and make importation into your accounting system a breeze.
Bottom line? Track your miles!