The business mileage deduction can be a huge boost at tax time, but the mileage log that you keep must be accurate and follow certain requirements to satisfy the Tax Court.
Waiting Until Tax Time to Make Up A Mileage Log
A good example is Jim Chapin, a California real estate broker, who used his Toyota Sequoia SUV for his real estate business. He figured that he drove a total of 11,135 miles for business one recent year and deducted $5,309 for car expenses. The IRS audited him and disallowed the entire deduction, and also added on a 20% negligence penalty. Chapin appealed to the Tax Court and lost.
Chapin did not keep a detailed mileage log of his drives each day, week, or month. He instead created a handwritten mileage log when he learned the IRS was auditing him. He also created an itemized list of his expenses for fuel, insurance, parts, registration, and repairs. However, neither list indicated any business purpose for the trips, nor reported the mileage traveled or the amount of each trip expense. The Tax Court found that Chapin’s records weren’t sufficient and denied his entire $5,309 deduction. (Chapin v. Comm’r, T.C. Summ. Op. 2014-31.)
Not Keeping The Right Information In Mileage Log
David Garza, an outside sales rep for a cable company who used his pick-up trick to visit customers, did a better job than Jim Chapin of creating his mileage log. He kept records in a calendar planner book. Throughout the year, he usually recorded his truck’s odometer readings at the start and end of each month, with some months including additional readings. Besides the odometer readings, the calendar planner had some personal notes, but provided no other information related to vehicle expenses. Garza did not record any of his personal travel in the calendar.
Garza claimed that he drove over 40,000 miles for business in 2010, resulting in a $20,085 deduction. The IRS and Tax Court denied his entire deduction. Because Garza did not record the amount, the time, or the business purpose of each business use of his truck, his calendar was not a reliable substantiation for his claimed mileage expenses. (Garza v. Comm’r., T.C. Memo. 2014-121.)
Too Many Errors in The Mileage Log
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 log 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 mile tracking app like MileIQ that uses gps tracking to automatically calculate your mileage for each trip.
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.
Go to the Google Play Store or the Apple Store to download MileIQ or a similar app like it. What app or process works the best for you??? Let us know in the comments sections below.
(blog post from mileiq.com)