Mileage Log Best Practices
INTRO
Don’t let an IRS audit go longer than it needs to because of your mileage logs.
If you are a business owner, then there is no doubt that you must deal with tax compliance at some point in time.
But what if we told you that the one thing that could cause an IRS audit of your company to continue longer than it has to is not how much money it makes but rather its mileage log?
Mileage logs are important because they can be used by the IRS as evidence of how much work was done and where it was done.
If you are audited and do not have a log for your miles, the auditor will assume that all your claimed miles were personal and disallow them. This could result in a huge tax bill or penalty for claiming false deductions.
The problem is that most people do not know how to fill out their mileage logs correctly or even worse, they do not keep them all together! This means when someone from the government comes knocking on your door asking for records, all they will see are blank pages and this will raise more questions than answers.
HOW TO STAY IN COMPLIANCE
Keep a detailed log of all your business mileage for the year. This way, when it comes time to file your taxes and report those miles, you will be able to prove them without any hassle from the IRS.
It also makes it easier to answer the following questions on Form 4562 when filing your tax return:
Do you have evidence to support the business/investment use claimed? (If “yes,” is the evidence written?)
List your total business/investment miles on each vehicle.
List your total commuting miles on each vehicle.
List your total personal miles on each vehicle.
Today, apps like MileIQ (https://www.mileiq.com/) make it easier than ever to maintain and manage your drives. Other options like a spiral notebook or excel spreadsheet can also help you stay organized.
STAY AHEAD OF THE IRS
You cannot pilot a plane without an engine, and you can't maintain your mileage log without keeping records. But what is the best way to keep them?
Let’s start where the IRS would.
In a typical correspondence audit, the IRS will ask you to provide the following:
Copies of your receipts, inspection reports, and other documents showing total mileage for the year
Copies of your logbooks and other records to support your mileage deduction
Copy of your calendar or appointment book to view business activities for the year
If you decided to use your actual expenses instead of the mileage deduction:
Copies of repair bills/invoices and any canceled checks to include gas, oil, tires, repairs, insurance, interest, tags, taxes, parking fees, and tolls.
Copy of bill of sale or other means to prove your basis.
Look at that list again. Here’s what the IRS is looking for
Mileage on repair bills/invoices, inspections, etc to match the odometer reading to your logbook
Comparison of mileage between repairs; again to match to your odometer reading to your logbook
The business purpose of mileage claimed to see if they match up with your calendar and drives in your logbook
CONCLUSION
A good mileage log is often the first thing an IRS auditor will look at. This saves time if you have a clean record of your miles and gas purchases. Keeping track of this takes minutes a day, but it can save you from hours of questions later on during an audit.
In the end, your mileage log can help you get out of an IRS audit with just a quick chat - or it could mean months of meetings in which you'll have to prove every single expense.
