If you use your vehicle for business purposes then you are able to take a mileage deduction when filing your taxes. While this will save you some money, it is also sometimes a red flag to the IRS if it is not done properly. If you want to help better ensure that you are not audited, here is the proper way to keep up with your mileage for business expenses.
Physical Logs vs Digital Logs
When keeping a logbook of your mileage, you can keep a physical log or a digital one. The Internal Revenue Service will accept both but it may be in your best interest to keep a digital one – or both. A physical log may get damaged or even lost and you’ll need a backup plan.
What Needs to be Included
When it comes to your mileage log, there are a few crucial items that need to be included so that if you do happen to get audited, everything is accounted for. These things include:
- The actual mileage you have traveled
- The business purpose for your trip(s)
- The dates and times of your business trips
- The locations you had to drive to for business purposes
You will need to list the amount of mileage you drove and you will need to log this in as soon as possible in what is considered contemporaneous records. What this means is that the record you create is done either the day you took the trip or very shortly after so that you have records that are accurate and you do not forget anything.
Errors in Bookkeeping
Everyone makes a mistake here and there but when it comes to the IRS, you want to make sure to be as precise and accurate as possible. Here are a few of the mistakes that you do not want to make if possible:
- Not using documentation but using estimates instead of real, accurate numbers and information
- Not stating the purpose of the travel for business reasons
- Mistakes, not proper documentation, negligence, etc.
There are many examples of doing the wrong thing and risking an audit or risking your deduction being denied. For instance, some business owners do not keep a logbook at all and will only try to make one once they are audited. There is no way of remembering everything that happened, the places you visited, and your mileage when some may have been months or even a year ago.
Consistency is another thing that is a necessity when trying to make sure you have all of your information in order. Do not make the mistake of logging in some information while neglecting to do it all of the time. It is crucial to log in your information daily if possible so that you do not miss anything. It may be a hassle to have to do but it is certainly worth it rather than risking a visit from an auditor.
In fact, some people do not realize that there is what is called a negligence penalty. What this is, is a penalty for the taxpayer’s disregard of the rules or negligence in keeping records. This penalty is up to 20% of the underpayment and can be in addition to having the deductionbeing not accepted. So this means that if you were getting $4K in deductions for your mileage but your records are not accepted, you not only lose that deduction but you will also get a penalty of 20% of the underpayment.
If you want to learn more about how to keep up with your mileage and track it accurately, please feel free to contact us so we can help you stay on track and be more secure against an audit by the IRS.