For small businesses that operate a fleet, or individuals who drive for business purposes, the cost of fuel is becoming worrisome. Equally worrisome is the increasing risk of being audited by the Internal Revenue Service (IRS) for deductions related to operating a vehicle for business purposes.
As of January 1, 2008, the IRS is allowing a deduction of 50.5 cents per mile traveled for business purposes. With such a high allowance, IRS audit watchers are predicting more audits will focus on IRS mileage reporting requirements which are reasonably stringent now.
The IRS requires specific information to be kept contemporaneously about travel being deducted for business. IRS Publication 463 outlines the recordkeeping necessary to claim mileage deductions. The information includes: Date vehicle placed in service, mileage (total, business, commuting, and other personal mileage), use of other vehicles, after work use of vehicle, and the most important two: having evidence to support the deduction, and having that evidence in writing.
In terms of audits, the last two are the biggies. The IRS will want to see your written mileage log AND will want to see additional proof of the travel being claimed. Such additional proof could be anything from a toll road receipt showing date and time traveled through the toll booth, to a lodging receipt. Travel could even be proven by providing copies of letters, Email, and phone records referencing said travel. According to IRS watchers and accounting professionals, the IRS will be increasingly looking for more definitive proof that you your travel was where you claimed and that it constituted business travel.
Already tedious record keeping will become even more tedious as the value of the travel continues to increase.
In addition to IRS audit record keeping, small business owners with fleets and others who take this deduction will want to be certain that they claim every possible mile allowed, while at the same time minimizing vehicle travel costs.
Keeping records and having driver accountability will become more important each time the price of gas goes up.
There are a number of programs for computers and cell phones that help you keep track of most of your records. The plain paper mileage log that can be purchased for less than $3.00 is still a good option; however, nearly all of these methods have one drawback, which is actually being able to prove you were where you said you were, when you said you were there.
One innovative and affordable solution is called the Mileage LogerTM by Vulocity. It is a system that uses a device based GPS unit that feeds information real time back to a web based server and user interface. Simply put, while you travel, your location information is being sent via the cellular system back to an electronic log. Several buttons on the small device that clips to your sun visor allows you to register locations along your travel route. When you get to a computer with web access, you fill in the business purpose and other information about your travel. This system tracks all miles and divides the personal and business miles in reports that can be downloaded or printed. While using this device will help you better prove you were where you said you were, it is still important to maintain supporting documents that will allow auditors to validate the business purpose of the travel.
An additonal benefit of the Mileage Loger is the ability of a business owner or management being able to insure efficient usage of company equipment, as well as, making sure drivers are using vehicles for authorized company business.
Sam Thacker is a partner in Austin Texas based Business Finance Solutions.
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