Using your private vehicle for business purposes is a legitimate business expense, and most small business owners choose to take advantage of this by claiming a deduction for business miles driven when filing their income tax.
Wave doesn't include any explicit way to record business mileage, so our Success team put their heads together and came up with these work-arounds. This article reviews the basics of mileage record keeping in the US and Canada, and explains how to enter it in Wave.
Want to reimburse your employees for mileage, or charge your clients for it? We've got that covered, too.
I want to record mileage so I can claim it on my taxes
Three words, eight letters: Keep a log. Both the Canada Revenue Agency (CRA) and the Internal Revenue Service (IRS) require that you keep a log to track any mileage incurred for your business. Keeping an accurate, up-to-date logbook, either on paper or digitally, is the best way to support your vehicle expense claims.
For each business trip where you use your vehicle, you must track the following. You cannot make estimates, so make sure your log is accurate and complete.
- Date(s) of your trip
- Starting point
- Purpose of your trip
- Total number of kilometres (or miles, in the US) driven
The CRA requires that you record your odometer reading at the start and end of each fiscal period, while the IRS requires that you record your odometer reading at the start and end of each business trip.
Remember that unless your vehicle was purchased exclusively for business use and is never driven for personal trips, claiming 100% of your mileage as a business expense will raise big red flags that could lead to an audit. The CRA and the IRS know that most small business owners use their vehicle for both business and personal purposes, and they expect your claim to match this reality.
Rules for claiming mileage may vary by jurisdiction and according to your business type. This is also an area where rules change frequently. Make sure that you are aware of the rules that apply to your situation. You may want to consider inviting your accountant into your Wave account during tax time to help ensure you’re getting the largest tax deduction possible, while reducing risk of an audit.
For every mile or kilometre that you drive, you’re eligible for a specific deduction rate. This rate changes regularly, so double check the current rates using the links below, or ask your accountant for updated information.
To illustrate, let's say you drove your vehicle 3,000 kilometres for your business this year, and the rate is $0.55 per km for the first 5,000 kms driven that year. You’re eligible for a deduction of $1,650 for the year. That's 3,000 x 0.55, for those of you playing along at home.
There are two different ways to track this. Whichever way you choose, remember to be consistent and track your mileage as it happens – keeping an accurate, up-to-date log is the best way to avoid an audit.
Option 1: I want to log mileage outside of Wave, on paper or electronically.
If you are logging your mileage outside Wave, then all you need to post in Wave is simply a record of the expense. The simplest way to do this is with a Journal Transaction (click here for a quick how-to on that). First, make sure you’ve created an expense account for this purpose – call it Mileage Expenses, or something else that will make it easy to identify.
Using the example above, you’d debit Mileage Expenses by $1,650, and credit your Owner’s Equity account the same amount (or Shareholder Loan, if your business is incorporated).
In the example above, you’re entering your expense deduction in Wave for an entire year in one fell swoop, but you could enter it monthly, quarterly, or on whatever schedule works for you. Just make sure you’re maintaining the log you keep outside of Wave up to date, as well! You’ll definitely need it in order to claim the deduction you’re tracking in Wave.
Option 2: I want to do it all in Wave – the tracking and the accounting.
Wave doesn’t have a specific way to record business mileage, but you can get creative using Bills. Here’s how.
Create a vendor called "Business Mileage," or something else you can easily identify. You'll be using this exclusively to log your mileage in Wave so make extra sure you don't call it anything you might confuse with some other vehicle expense!
Now every time you incur mileage for your business, you'll create a bill to that vendor. Enter the details of the trip (everything you're required to enter, as listed above) and the total number of miles or kilometres, and click Save.
You can see here that all the details of the trip have been entered in the Description setting. The "item" being billed is Mileage, and the total kilometres, in this case, 17, is entered under Quantity.
Now, you can see a log of every trip you've taken for business by going into Bills and sorting to view "Business Mileage" as the vendor.
You can also track mileage under Reports using the Purchases by Vendor report to sort by date and see the total balance – this way, when it's time to do your taxes, you'll see the deduction you can claim already calculated for you!
I want to record mileage so I pass the cost on to my client
Log your mileage outside of Wave as previously discussed, and then record it as a line item on your invoice, using the rate you and your client agreed upon. For example, if you’ve agreed your client will pay for the mileage to drive to and from their location, at a rate of $0.55, you would create a product called “Mileage,” priced at $0.55, and enter it as a line item on the invoice. If you drove 50 miles, you’d enter a quantity of 50.
Remember that, since you are essentially “selling” this mileage to your client as part of your rendered services to them, you cannot claim this mileage again as an expense deduction on your taxes. Passing the cost on to your client makes your mileage a product you’re selling, rather than a reimbursable expense!
I want to track my employees’ mileage so I can reimburse them
To reimburse your employees using Payroll by Wave, click Payroll > Employees, and then the pen icon to edit the employee you’d like to reimburse. Select Benefits & Deductions from the left-hand menu, then click Add to Pay. Select “Expense Reimbursement” from the dropdown, and enter a description label (this label will appear on the stub your employee receives).
The rate at which you must reimburse your employees for mileage varies based on jurisdiction. Check with your tax professional!
Enter the total amount and whether the reimbursement is recurring. Mileage reimbursements would generally not be recurring, as the amount to be reimbursed will change from paycheque to paycheque. Click Save. The reimbursement will occur the next time your run payroll!