Over the past two years the IRS has allowed higher and higher mileage deductions for business travel. With the current deduction at 50.5 cents per mile, you need to be ever-vigilant of keeping good mileage records in order to claim your maximum deduction for company travel. As a business owner you also need to be aware of the potential for workers to pad their mileage on their expense reports and you have to manage your business travel records while keeping in mind the fact that your business could be audited by the IRS.
In addition to IRS audit record-keeping, small business owners with fleets, as well as other companies that take this deduction, will want to balance the need to maximize travel deductions against the need to minimize vehicle travel costs.
IRS audits are no fun, and the discovery of disallowed mileage (claimed deductions that don’t meet the IRS requirements) can add up to real money and make the process even more painful. Do you and your drivers claiming mileage deductions and reimbursements understand the IRS rules? Here are some tips that will help you keep your vehicle fleet on the straight and narrow:
- The IRS requires specific information to be kept contemporaneously about travel being deducted for business. IRS Publication 463 outlines the record-keeping necessary to claim mileage deductions.
- Mileage information records must include: the date the vehicle was placed in service, mileage (total, business, commuting, and other personal mileage), use of other vehicles, and after-work use of vehicles. This is often referred to as a mileage log.
- You must keep evidence to support the deduction and have that evidence in writing. This means keeping receipts of gasoline purchases that support the number of miles driven, etc. The IRS requires documentation to be maintained for three years after the year a tax returned is filed.
- If you use credit cards to purchase gasoline, pay for oil changes, etc., you have a convenient way to keep track of records. If you use Quicken or QuickBooks to maintain your business records, you can often download the credit card and banking information directly into your program, which will help make record-keeping easier.
- It’s also important to keep track of the number of miles a year your vehicle is driven for both business and personal use. Recording the mileage when you have your annual vehicle inspection, on January 1 of every year, and when vehicles are placed into and taken out of service is crucial as well.
In terms of audits, the last two are the biggies. The IRS will want to see your written mileage log and additional proof of the travel being claimed. Such proof could be anything from a toll road receipt showing the date and time traveled through the toll booth to a lodging receipt. Travel could even be proven by providing copies of letters, e-mail, and phone records referencing said travel. According to IRS watchers and accounting professionals, the IRS will be increasingly looking for more definitive proof that your travel was where you claimed and that it constituted business travel.