How to Calculate Mileage for Business

As this involve the IRS and the tax laws, it is important to learn how to calculate mileage for business so that the business operates according to the law. You must make sure that a proper record on every business mileage is kept for audit purpose.

What are the things to consider so that you could save hundreds, or even thousands of dollars?

How to Calculate Mileage for Business

As the definition goes, mileage is the total miles covered or traveled in a given time.

When it comes to business, mileage could be:
a. An allowance for travel expenses established at a specified rate per mile, OR
b. Expense per mile, as for the use of a car.

It is a very important and key skill to be able to figure out how to calculate mileage expense for business, especially small businesses and the self-employed.

There are 2 ways to calculate the mileage when it comes to end of the year:
1. Actual Expense
2. Standard Mileage Expense

The actual expense keeps track of the actual business related expenses, and adds depreciation. If you use the actual method you will need to do a little more work.

The actual expense requires you to know the total mileage for the year for the vehicle. And, if you use more than one car for business, you will need these figures for each car used for business.

The standard mileage expense works by multiplying the business miles by the standard number (.55 per mile for 2009), then add in tolls, parking, and business percentage of finance fees.

Regardless of which method you use to calculate auto expense you will need to know the total business miles used for the year.

Take an example:
Mr. B purchased a $20,000 car four years ago. In year 2009, 8,000 business miles were accumulated on his car. A total of 10,000 miles accumulated for his car. His total expenses for maintaining the car were $5,000, which includes $500 in finance charges. $400 was spent on tolls and parking fees. So this example assumes 8000 business miles and 10000 total miles, for a business use of 80%.

Let’s look at how to calculate mileage for business using the actual method:

Remember that in actual method, your business miles for the year are divided by total mileage for the year to get your business percentage.

So, for a situation where
Business miles = 8,000
Total miles = 10,000
Total auto expenses = $5,000

Your business use = 80%

Total auto expenses are multiplied by the business use percentage.
$5,000 X 80% = $4,000

Tolls and parking = $ 400
Depreciation = $1,200 (15 year life, Straight line depreciation, $2000 Salvage value)

=> Total Expense = $5,600

How to Calculate Mileage for Business

What if you use the standard method for above case and condition ?

55 cents per mile is the 2009 rate.

8,000 business miles times 55 cents per mile = $4,400
80% of finance charges of $500 = $ 400
Tolls &parking = $ 400

=> Total Expense = $5,200

In this case the actual method beats the mileage method by $400. You should figure out if the $400 is worth the effort of keeping track of everything.

Check out the tips below for a simple yet crucial methods of keeping records for any business travel.

* Keep records of the miles by noting the starting mile and ending mile reading.
* The expenses incurred for repairs or maintenance made during the course of travel for business requirements
* The toll and parking charges and gas charges
* Diligently recorded date, time and purpose of travel.

All these details must be systematically maintained in any form of your business documents (such as spreadsheets, PC excel sheet or even a simple clipboard exclusively used for this purpose). This will make sure that every single business travel will be recorded and supported by related documents.

Please be reminded that different countries will have a different sets of tax code and tax laws. The US and the UK will have quite different approach when it comes to tax relief for business mileage (for UK related info, you may check out UK Income Tax relief info - mileage)

As with any other field that required professional services, it is advice that you get deeper knowledge and info from a certified tax advisors or consultants to better understand how to calculate mileage for business.

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