Below is a post we had from back in July if last year regarding the importance of mileage logging for business travel. MileIQ is a great app to use to keep track of this. It isn’t too late to get into the habit of logging miles so you don’t miss out on deductions!
Mileage Log Requirements For The IRS
This article from Stephen Fishman at www.mileiq.com emphasizes both the importance and best practices and what not to do regarding tracking miles for tax purposes.
The IRS scrutinizes the mileage deduction because many taxpayers abuse it. The most common reason people lose this deduction is lack of adequate records. If you face an IRS audit, make sure your mileage log and mileage tracker meets the IRS’ requirements.
The business mileage deduction can be a huge boost at tax time, as the average MileIQ users deducts more than $6,900 a year. But the vehicle mileage log that you keep must be accurate. It must also follow certain requirements to please the Tax Court.
Let’s look through a few cases where the IRS said the log provided wasn’t good enough. This just shows that a mileage log template, mileage log spreadsheet or mileage log book may not be always be enough.
Mileage Log Mistake #1 – Waiting Until Tax Time to Make Up A Log
Jim Chapin, a California real estate broker, used his Toyota Sequoia SUV for his real estate business. He figured he drove a total of 11,135 miles for business one recent year. He deducted $5,309 for car expenses. The IRS audited him and disallowed the entire deduction. Not only that, it also added on a 20% negligence penalty.
Jim appealed to the Tax Court and lost. Jim did not keep a detailed mileage log of his drives each day, week, or month. He didn’t have a milage tracker automatically creating records. He instead created a handwritten log when he learned the IRS was auditing him.
Jim also had an itemized list for the costs of fuel, insurance, parts and more. Yet, these lists didn’t include business purpose for the trips, nor reported the mileage traveled or the amount of each trip expense. The Tax Court found these records weren’t enough and denied his entire $5,309 deduction. (Chapin v. Comm’r, T.C. Summ. Op. 2014-31.)
Mileage Log Mistake #2: Not Keeping The Right Info
David Garza did a better job than Jim of creating his log. He kept records in a calendar planner book. He’d record his truck’s odometer readings at the start and end of each month. Some other months would including more readings and some wouldn’t. It wasn’t as consistent as a mileage tracker that logged all of his miles.
The calendar planner also had some personal notes, but didn’t include other vehicle expense info. David did not record any of his personal travel in the calendar.
David claimed that he drove over 40,000 miles for business in 2010. This resulted in a $20,085 deduction. The IRS and Tax Court denied his entire deduction. His calendar was not a reliable substantiation for his claimed mileage expenses. The Tax Court said this milage log needed the time, business purpose or other costs. (Garza v. Comm’r., T.C. Memo. 2014-121.)
Mileage Log Mistake #3: Too Many Errors
Even a mileage logbook that on its face looks pretty good may not pass IRS muster. A good case in point are Mr. and Mrs. Moore, who operated a real estate brokerage business in Texas. They each kept a mileage logbook consisting of 12 pages, one page for each month of the year. Each page contained entries for each day of the month, including odometer readings, miles driven (sometimes designated as “commuting” and sometimes as “business”), and the purpose for the trips. The Moore’s each typically drove over 100 miles per day for their business and claimed a total $31,840 mileage deduction for the year in question.
Unfortunately, the IRS and Tax Court denied their deduction. The Court said that the logbooks were not reliable because they contained too many errors and questionable entries- for example, they did not contain the name of a single person the Moores claimed to have visited for their business. Instead, the business purpose of their driving was stated in general terms, such as “OPEN–Review Task Log–Close Office” or “OPEN–Review Contract–Close,” or “Open–Update Website–Close.” (Moore v. Comm’r, TC Summ. Op. 2012-16.)
How to Keep a Proper IRS-Friendly Mileage Log
If you drive your car for business, you don’t want to end up like the taxpayers in these cases. Fortunately, it’s easy to avoid their sad fate. All you have to do is keep minimally adequate records. According to the IRS, you must keep a record of:
- your mileage
- the dates of your business trips
- the places you drove for business, and
- the business purpose for your trips.
The IRS also wants to know the total number of miles you drove during the year for business, commuting, and personal driving other than commuting.
By far the best way to prove to the IRS how much you drove for business is to keep contemporaneous records. “Contemporaneous” means your records are created each day you drive for business, or soon thereafter.
To keep track of your driving, you can use either a paper mileage logbook that you keep in your car or a mileage tracker like MileIQ that uses gps tracking to automatically calculate your mileage for each trip.
You can download this app by visiting https://www.mileiq.com/
Remember, you are not allowed to make estimates of your mileage. If you don’t have exact, reliable records, the IRS and Tax Court will disallow your entire mileage deduction, even if it is clear that you did in fact drive for business during the year.