Keeping track of mileage and gas receipts for taxes is a big part of what a fleet manager does. But why is it so important, and what can you do to make the process easier?
In this article, we’ll discuss the answers to those questions so you can streamline your fleet management efforts and make your business run better.
Why Track Mileage And Gas Receipts For Taxes?
1) Qualify For Deductions
The first and most obvious reason to track mileage and gas receipts for taxes is to find out whether you qualify for deductions in the first place.
Fleet-related deductions may include vehicle depreciation (more on this later), vehicle lease payments, fuel costs, vehicle repairs and maintenance, as well as:
- Vehicle insurance
- Vehicle registration and licensing fees
- Driver wages and benefits
- Lodging and meals
You’ll need specific information about your fleet — including mileage driven — in order to decide between the different aspects of the fleet tax law.
2) Earn Tax Credits
Tracking mileage and gas receipts for taxes can be used in combination with fielding certain fuel-efficient vehicles to earn tax credits for your business.
Here are some of the tax credits that might be available to your businesses:
- New Clean Vehicle Tax Credit: Businesses can claim a credit of up to $7,500 for purchasing new, qualified plug-in electric vehicles (EVs) or fuel cell electric vehicles (FCEVs).
- Used Clean Vehicle Tax Credit: Businesses can claim a credit of up to $4,000 for purchasing used, qualified plug-in EVs or FCEVs.
- Alternative Fuel Vehicle Refueling Property Tax Credit: Businesses can claim a credit for installing electric vehicle charging stations or other alternative fuel refueling equipment.
- Section 179 Deduction: Businesses can deduct the full cost of certain qualifying vehicles, including some EVs and FCEVs, in the year they are purchased.
2) Optimize Performance
Another reason to track mileage and gas receipts is to control costs and optimize fleet performance.
With the data that fleet monitoring and mileage tracking provides, you can gain new insight into the way your business runs and find ways to improve operations across the board.
3) Ensure Compliance
The IRS has made it mandatory that businesses maintain accurate records of all vehicle expenses accrued in a calendar year — including mileage and gas receipts.
If your business fails to maintain such records, you can find yourself on the wrong end of penalties (both monetary and restrictive to your fleet) as well as possible legal action.
What’s more, the IRS will typically scrutinize all fleet vehicle expenses more than usual because there’s a lot of room for fraud and mistakes within this category of costs.
One way that you can avoid costly mistakes is by using a smart fuel card and software to track mileage and gas receipts and store that data for the end of the year when it’s time to do your taxes.
Coast, for example, gives your drivers the ability to send receipts and memos about fuel purchases (including mileage) directly from their phones at the point of sale.
This dramatically cuts down on the need for you to chase down missing receipts and other information and helps you maintain your records for tax time.
4) Take Advantage Of Vehicle Depreciation
Depreciation represents the estimated reduction in value of a fixed assets — in this case, a fleet vehicle — within a fiscal year. The IRS allows businesses to deduct some of the cost of vehicle depreciation from their annual tax liability.
What that means for you is that you’ll pay less tax on your rolling stock because the value of the vehicle has gone down. Basically, it comes down to the fact that vehicle value goes down (depreciates) so tax liability does as well.
There are several methods for calculating depreciation, so be sure you’re using the one that’s best for your business (talk to a tax professional for more details).
For example, the straight-line method for a vehicle with a $20,000 purchase price, a scrap value of $0, and a 10-year useful lifespan would show a depreciation rate of $2000 per year
($20,000 / 10).
So, in the first year after you purchase the vehicle, the net book value for tax purposes would be $18,000.
And that’s just depreciation on one vehicle. If you have 10 vehicles in your fleet, you could be depreciating tens of thousands of dollars every year.
Depending on the size of your fleet, that can be a significant factor in reducing the overall monetary burden that you experience come tax time.
5) Identify Business And Personal Use
Many of the deductions, tax credits, and compliance issues that you’ll have to deal with on your tax return depend on how much your fleet vehicles are used for business purposes and how much they’re used for personal (i.e., non-business) purposes.
Separating business miles and personal-use (or personal conveyance) miles is essential for putting together the most accurate tax return possible.
To do this, implement a comprehensive mileage log for each vehicle that includes:
- Date and starting odometer reading
- Destination and purpose for the trip (i.e., business or personal)
- Ending odometer reading
- Supporting documentation
You can have your drivers do this manually in a paper log book, have them use a digital mileage tracking app, or employ vehicle telematics to automate the process and improve accuracy even further.
The IRS suggests keeping mileage and expense records (including gas receipts) for three years from the date you file your tax return.
So, if you file your 2024 tax return on March 25, 2025, you should keep all the mileage and expense records you used until at least March 25, 2028.
6) Avoid Audits
As we mentioned earlier in this article, the IRS often examines fleet vehicle expenses very closely. If something is amiss, they can arrange for a formal review of your business’s financial records to ensure that they are accurate.
According to their website, the IRS can include returns filed within the last three years in an audit, but, if they identify a substantial error, they may add additional years (usually not more than six).
Maintaining accurate mileage records (and retaining fuel receipts) can help you substantiate your tax claims and avoid potential audits.
IRS Rules For Deducting Fuel Expenses
Where business use of a vehicle is concerned, the Internal Revenue Service (IRS) allows for and accepts two types of deductions:
- Standard mileage rate
- Actual expenses (or expense-related)
Business managers can choose which deduction they want to claim up to a certain point. The IRS defines that point as: operating five or more vehicles at the same time.
So, if your business operates one, two, three, or four vehicles, you can claim standard mileage OR actual expenses (but not both) come tax time.
If your business operates five or more vehicles — be they cars, SUVs, pickup trucks, vans, semis, or a combination of all five — the IRS requires that you list actual expenses on your taxes.
It’s worth noting that fleet managers would do well to track both mileage and gas receipts for taxes regardless of how many vehicles they operate and which deduction they choose.
The importance of this will be illustrated as we discuss each deduction in a bit more detail.
Standard Mileage Rate Method
Per IRS regulations, fleet managers can use the standard mileage rate to figure the deductible costs of a vehicle that is owned or leased. If a taxpayer wishes to use the standard mileage rate for a leased vehicle, they must use that deduction for the entire lease period.
In other words, a fleet manager must use the standard mileage rate for the first year a vehicle is in service in order to then use the standard mileage rate in subsequent years.
The IRS adjusts the standard mileage rate annually — and, in some situations, during the year — to reflect changes in the cost of operating a vehicle.
In fact, the rate for 2022 was $0.585 per mile, but, because of skyrocketing fuel prices, the IRS increased the rate to $0.625 per mile for the last six months of the year (from July 01, 2022 through December 31, 2022).
Fleet managers who choose the standard mileage rate may not deduct any other costs that are expense-related. They may, however, deduct business-related parking fees and tolls in addition to the standard mileage rate.
Actual Expenses Method
If a fleet manager chooses the actual expenses method (or is required to do so because of the number of vehicles the business operates), they can track and deduct a wide variety of vehicle costs, including:
- Depreciation
- Lease payments
- Registration fees
- Licenses
- Fuel (including fuel taxes)
- Insurance
- Maintenance and repairs
- Oil
- Garage rent
- Tires
- Tolls
- Parking fees
With the actual expenses method, it is important to keep complete and accurate records in order to substantiate the costs you claim on your tax return.
A mileage log is extremely helpful in this regard and establishes what percentage of the miles driven were for business use.
Fleet managers should also retain gas receipts along with any invoices and other documentation of costs that are vehicle-expense-related.
Other Reasons For Tracking Mileage And Gas Receipts
Optimize Performance
A robust fleet monitoring program can give you new insight into the way your business runs as well as help you identify ways to improve operations across the board, including efficiency metrics such as:
- Total cost of ownership and vehicle cost per mile
- Vehicle utilization
- Maintenance frequency and costs
- Driver performance (e.g., fuel-efficient driving techniques) and safety compliance
Tracking mileage, gas receipts, and other vehicle KPIs can also help you establish benchmarks that you can use to measure the performance and efficiency of your fleet going forward.
Reduce Mileage
You can’t control what you don’t track. Few places is that statement more true than when it comes to fleet vehicle mileage.
Keeping mileage driven as low as possible improves fuel efficiency and minimizes wear and tear on your vehicles.
Using mileage data to plan your driver’s activity can give you the ability to change routes more easily — or even create entirely new routes — in order to provide them with the shortest distance to travel between their start and end point.
With the right combination of software and mileage data, you may even be able to benefit from real-time dynamic routing (i.e., directing vehicles that are already in the field to new routes based on proximity to certain locations, traffic, and other variables).
For more information on how to reduce mileage, take a few minutes to read this article from the Coast blog: What Is Route Optimization? | A Guide For Fleet Managers.
Track Driver Performance
Tracking mileage and gas receipts can also reveal a lot about driver performance. For example, examining vehicle records can reveal that a certain driver is making more stops than necessary along the way.
Tracking mileage (and the miles per gallon that go along with it) can also help you find ways to improve driving behavior, including fuel-saving techniques such as:
- Accelerating slowly
- Using the cruise control when possible and maintaining the speed limit
- Coasting more when a stop or slowdown is imminent and braking smoothly
- Turning off the engine to avoid unnecessary idling
Better driver performance can help save your company money, improve profit margins, and protect your business’s reputation.
For tips on how to improve driver performance, check out this article from the Coast blog: 10 Effective Ways To Improve Driver Performance.
How To Track Mileage And Gas Receipts
1) Create A Logbook For Each Vehicle
The first step in manually tracking mileage and gas receipts for taxes is to create a logbook for each vehicle.
This logbook can be a notebook or an app. Either way, drivers must take the time to manually record the details of their activities before, during, and after their trip.
2) Record Mileage For Every Trip
Train your drivers to record mileage for every trip — no matter the destination or the distance.
Of course, you’ll absolutely need entries for deliveries and customer appointments. But you can also track mileage for supply pickups and trips to the mechanic. Really, any business miles driven are eligible for either the standard mileage deduction or the actual expenses deduction.
3) Include Other Information
For your logbook to be complete — and useful come tax time — your drivers will need to track other information as well as miles driven.
This other information includes details such as:
- Purpose of trip
- Date of trip
- Starting location
- Destination
- Starting mileage on the odometer
- Ending mileage on the odometer
- Total mileage for the trip
- Tolls and other trip-related expenses
- The number of stops they make along the way
- Duration of stops
- Idling time (if possible)
If you use your fleet vehicles for personal use as well as business, it’s also extremely important to distinguish between these two types of driving (the purpose of the trip mentioned at the beginning of the bulleted list).
Personal miles are not eligible for deduction on your taxes even though they were covered in a commercial vehicle.
4) Keep And Turn In Gas Receipts
Another important part of tracking mileage is holding onto and turning in paper records of all fuel fill-ups along the way.
Train your drivers to store receipts in their logbook while driving and then turn those receipts over to you when they arrive back at the office.
On the fleet manager’s end of things, you can streamline the recordkeeping process by entering those fuel expenses into a spreadsheet after you receive them. This makes your job easier later on when you have to refer back to the data for tax purposes.
Of course, the simplest way to track gas receipts for taxes is to implement online tools into your workflow that do most of the work for you. We’ll discuss those online tools at the end of this article.
Telematics For Tracking Mileage
You can, of course, choose to track mileage and gas receipts for taxes manually as we outlined in the previous section. But, doing so requires a lot of time and effort to get right.
The easiest — and many would argue, the best — way to track mileage is with telematics.
Telematics is a set of systems and vehicle add-ons that use the Global Positioning System (GPS) and on-board diagnostic (OBD) equipment to plot movement on a computerized map.
Once a technician has installed the components, the telematics hardware processes and analyzes a vast array of information about the vehicle, including:
- Position/location
- Speed
- Distance traveled
- Total mileage
- Trip time
- Idling time
- Harsh braking
- Rough driving
- Seat belt use
- Fuel consumption
- Engine data
- System faults
The onboard computer then transmits the data via a cellular network into fleet management software, where you can view and export reports, gather intelligence about your fleet, set performance and safety benchmarks for your drivers, and much more.
Introducing telematics hardware and software into your fleet takes a lot of the pressure off your drivers to maintain accurate recordkeeping practices and allows them to focus on their job — piloting the vehicle safely from point A to point B and back again.
Manage Fuel Expenses Automatically
With five or more vehicles in service, manually tracking gas receipts for taxes can be extremely difficult. Instead, manage fuel expenses automatically with Coast.
With Coast, you get:
- Discounts on every gallon
- Sign-up and referral rewards
- No hidden fees
- Universal acceptance
- Easy manager access
- Advanced spending controls
- Security alerts
- Data tracking and reporting
The Coast card even provides real-time expense tracking and a powerful online management platform that puts the entire fleet in the palm of your hand and gives you full visibility of every dollar spent.
Are you ready to give Coast a try? Get started here. And, for more help with all aspects of running your fleet-based business, visit our resource center on CoastPay.com.
