Calculate business mileage: Complete guide and tips to get your trips reimbursed
Mobility runs through our DNA. One of our core undertakings is solving the mobility needs of companies. This is a thorough guide on how to calculate mileage for tax deduction purposes, elucidate some of the technical jargon, and provide you with useful tips. Whether you use your private car to go from one meeting to the other or for the transportation of goods for your company, there are some tax benefits you can enjoy. We will explore what calculation of mileage means, the methods available for deducting business-related mobility expenses, and some tips about cutting-edge technology.
1. What does it mean to calculate mileage for tax deduction?
Whenever a person uses a car for business-related purposes and incurs costs derived from these business trips, the Internal Revenue Service (IRS) foresees tax deduction benefits. These benefits are part of the broader concept of tax-deductible business expenses that include costs of travel, transportation, gifts, and non-entertainment-related meals.
“If you use your car only for business purposes, you may deduct its entire cost of ownership and operation (subject to limits…). However, if you use the car for both business and personal purposes, you may deduct only the cost of its business use.”
– Business Use of Car, Internal Revenue Service
Good to know when calculating mileage for business deduction:
- Commuting expenses are considered personal expenses and not business expenses, so these miles do not factor into the business mileage.
- If your business is home-based, you are allowed to deduct the expenses from driving from your home to any business-related meeting or location.
- It is very important to keep clean records; otherwise, the IRS may disable the tax deductions from your car usage.
- If driving an advertised car, the costs of driving that car stop being considered a business expense.
2. Methods of calculating business mileage expenses
According to the IRS, people have two possible methods of calculating the amount they can deduct from taxes due to their car usage.
“You can generally figure the amount of your deductible car expense by using one of two methods: the standard mileage rate method or the actual expense method. If you qualify to use both, you may want to figure your deduction both ways before choosing a method to see which one gives you a larger deduction.”
– Business Use of Car, Internal Revenue Service
Standard mileage rate method
In this method, there is a fixed rate calculated in cents per driven mile. Wherever you are in the United States or the extra costs you had that year for the vehicle, the deduction amount is calculated by multiplying the number of miles driven in business-related trips times the standard mileage rate.
Each year, the IRS calculates the rates that individuals can deduct depending on the purpose of the trip. Three categories are calculated by the IRS: business-related vehicle use, charity-related use, and medical moving use. Whereas the IRS only considers variable costs for both the charity and medical moving deductions, for the calculation of the business-related rate, the IRS considers fixed and variable costs of operating a car, van, pickup, or panel truck.
Standard mileage rates in cents per mile (2016-2021)
| Business | Charity | Medical moving | |
|---|---|---|---|
| 2021 | 56 | 14 | 16 |
| 2020 | 57.5 | 14 | 17 |
| 2019 | 58 | 14 | 20 |
| 2018 | 54.5 | 14 | 18 |
| 2017 | 53.5 | 14 | 17 |
| 2016 | 54 | 14 | 19 |
Actual expense method
In this method, people can deduct the exact costs that they had for their business-related trips. These expenses have to be multiplied by the percentage of business-related use. So, to calculate mileage returns according to the actual expense method, if a person uses a vehicle 60% for business-related purposes, the sum of all relevant costs is multiplied by 0.60 to obtain the deductible amount. The other 40% are not deductible since they are driven for other purposes. Some of these deductible costs include:
- Depreciation of the vehicle (not for leasing)
- Interests paid on vehicle’s loan
- Registration fees
- Tolls
- Parking fees
- Rent of garage
- Insurance costs
- Tolls
- Repairs
- Maintenance costs
- Registration fees
- License plates
3. Technology to track business mileage
No matter which method is chosen to calculate business mileage deductions, it is necessary to track each business trip in detail. Throughout the years, employees have had to go through the painful process of recording this with pen and paper. Nowadays, it is not unusual for companies to have Excel templates for their teams to keep track. However, a wide variety of apps are now available to make this process easier. Some of them even have automatic mileage tracking that allows classifying each ride easily. Some others automatically save the data in the necessary format for tax declarations. Some can be linked to wider cost-tracking services for companies. The possibilities are limitless, and the app that best suits each one will depend on the concrete needs. Here we present a diverse selection of apps that are useful to calculate business mileage.
4. Some alternatives for company mobility needs
Whichever method you choose to calculate business mileage deductions, and even with the best technologies to calculate business mileage, getting those tax deductions implies extra work. That is exactly the opposite of what a company wants. In Sixt, our mobility concept is based on the idea that mobility in companies should bring efficiency, flexibility, and resilience. Empowering team members by making available the best vehicles for the current situation and saving them time to focus on their projects. Moreover, employees are expressing their preference for fringe benefits. Having companies offer a company car ranks on the top of their priorities. Your Sixt company account will serve as the command center from which you can access our palette of services:
Sixt short-term rental
Are you planning your next business trip to another city? You just got an important business lead, so you need to move quickly? At Sixt, we have a wide range of vehicles waiting for you to book up to 30 minutes in advance.
Corporate long-term rental
Does your company need an extra vehicle, but you don’t want to invest in purchasing one or commit to rigid leasing contracts? Our long-term rental service provides you with the best fleet under flexible conditions. Enjoy the benefits: no minimum-term, flexibility to change vehicle or location if your needs change, no extra costs, reliability.
Sixt+
Would a monthly subscription model where you can easily just pick up your desired vehicle work for you? Our car subscription service is designed to give you the easiest experience and total control by knowing exactly what your costs will be.
Sixt ride
Do you need to catch your next flight but are too busy to drive yourself? With Sixt ride, the most reliable drivers will pick you up and drive you safely and comfortably to your next destination.
5. Summing up
Are you getting money back from the costs incurred during your business trips? The IRS foresees tax deductions on all car-related costs. There are two ways of calculating mileage deductions: the actual expenses method (where the actual yearly costs are summed up and the percentage that can be attributed to business-related activities is calculated) and the standard mileage rate method (calculated with the yearly rate established by the IRS and multiplied by the business mileage). One of the key things to remember is that keeping clean records is crucial to enjoying these benefits. New technology in the form of mobile apps has appeared in the market that helps automatically track the mileage and save it in the correct form for tax returns. Companies can also explore other mobility solutions to empower their employees, save time and money, and inject dynamism into their businesses.
