IRS Audit, IRS Audit Help, IRS penalties, IRS Problems, IRS Tax Problems

What is Your Beginning of the Year Odometer Reading?

January 4, 2014 - IRS Audit, IRS Audit Help, IRS penalties, IRS Problems, IRS Tax Problems

What are you going to do different this year than you did last year? If you use your car for business I hope you remembered to write down, yes on paper, your odometer reading. If you didn’t do this before you got behind the wheel on the first day of the year, it’s not too late to start this process today. What good is this Beginning of the Year Odometer Reading? This is just one step on the “Prove It!” scoreboard if you are ever in a contest with the Internal Revenue Service. This contest is also known as an IRS TAX AUDIT! This audit can be started by the IRS, but they work hand in hand with the states and this audit can also be started by your state’s Department of Revenue. By working together, these agencies  are sharing the workload AND they are sharing the results with each other. Most state tax returns begin with the results of your federal return for that same year. If the IRS makes an adjustment on your federal tax return, you can be darn sure they will tell their counterpart at your state’s tax office. And if your state makes an adjustment, corrects a mistake, disallows (throws out) a deduction, adds income you failed to include (ignored or didn’t even remember you received), you can be sure they will tell “the feds.” Record-keeping is your safety net and YOU must keep the documentation you need to prove the position you take on your tax returns. Because in an audit, you are considered guilty until you prove yourself innocent. CAUTION:  Do not  throw away old tax returns just because we turned another page on the calendar. ALWAYS keep your copy of the tax returns you filed FOREVER!  Why that long? Why not just three or five or seven years? You never know when you need to look back at an earlier year’s return. In 2013, I was amending a 2009 tax return. It had a tax benefit that was to be carried BACK two years to 2007. Since I was the preparer on both years, I had the preparer copy of both years’ returns. But if you were my new client, would you have that 2007 return for me? Another client is inheriting an IRA from her mother. Is all of that IRA taxable to her? Did her mother ever deduct her IRA contributions? Did Mom keep her copies of those earlier year returns that have now become so important to her daughter? Do yourself and your family a favor and KEEP  your tax returns forever. So, back to your New Year’s auto log. It’s never a bad habit to keep a little diary for your car, whether you want to deduct your mileage or not. If you want to sell it later, this odometer reading record helps to prove the condition of your vehicle and could get you a better sales price. Keep a record of your vehicle maintenance. When was the oil changed? When were the tires rotated? When were old tires replaced with new ones. Keep track of things like that. If you want to deduct the business use of your vehicle, the IRS does require a log of your total miles AND a log of the miles you drove for business. If you don’t want to be bothered by keeping this timely (at-the-time driven) log. you don’t have to. But if you do not keep the log, you do not get to claim the deduction. It’s as simple as that.