IRS Audit Help, IRS Audit Process, Tax Audit

ALWAYS Keep a Log of Your Business Miles Driven

November 17, 2011 - IRS Audit Help, IRS Audit Process, Tax Audit

If you use your car for business, the business use of your vehicle could be one of the biggest business deductions you take. But that deduction comes with the requirement that you keep a log of your business miles. More than that, you also need to be able to prove the total miles driven. So many of my clients believe this is more trouble than it is worth. The polite version of what they say is this auto log is a pain in the butt. And I tell them, it’s okay if you don’t want to keep that auto log. But the IRS says, “no log, no deduction.” You don’t have to keep the log, but if you don’t you can’t take the deduction. Does it really have to be such a difficult task? I say, no. It’s just a matter of making it easy and making it a habit. I’ll tell you how I keep my auto log. Now this might sound just like the green-eye-shaded accountant with no life, but you can make it fun. Begin your New Year with a New Mileage Log. Get yourself a little calendar you can keep in your car. Choose a pencil with a pencil clip so you can clip that pencil to your log. I keep both of these tools in the pocket of my driver’s side door. My log is easy to use because it is handy. I don’t have to look for it. It is not lost with all that other stuff in my car glove box. Depending on what part of the country you live in, you might call that the glove compartment. Does your car have a “trip meter” in addition to the odometer? That trip meter makes it so easy to track the miles driven on any individual trip. But you also want to record the total miles driven each year. Knowing the total lets you determine the business percentage of your miles driven. Outside sales people can drive a LOT of miles for business. And without the log, many believe they drive 90%-95% for business. Only the ambulance and the garbage truck (and some other specific purpose vehicles) are driven 100% for business. Some people are surprised to find while they drive a lot for their work, their business percentage is much less because of the personal use of their car. Commuting (driving from home to work) is personal mileage and is not deductible. Commuting is discussion that deserves its own blog and I will post that later. You can choose to deduct the actual expenses of operating your vehicle or the standard mileage rate allowed. That standard rate changes every year. 2011 was a “split” year. The standard mileage rate for January 1 thru June 30 was 51 cents per business mile; the rate for July 1 thru December 31 was 55.5 cents per business mile. The rate for 2012 remains 55.5 cents per business mile. Actual expenses would include fuel, maintenance, repairs, depreciation of the purchase price, etc. If you choose the actual expense method, only the business percentage of those expenses are deductible. Regardless of the method you choose, you will want to keep your gasoline receipts and your repair bills. Both will be used by the IRS to verify your deduction and your mileage log. They don’t want to just take your word for it. They want to VERIFY your documentation. So join me on New Year’s Day in recording my odometer for the start of the year. That same odometer reading is the ending mileage for the year just closed. And if you are starting you log after the year has begun, don’t let that stop you from beginning. You need to start somewhere and you need that log to protect your deduction.