Deducting mileage seems to be a beloved deduction amongst taxpayers. I seem to get asked by almost every client every year if it is something they should be taking. With the rising cost of gas and vehicles, it will not be a surprise that more taxpayers will be asking about and pushing for the ability to take this deduction. But be careful when advising your clients.
A tax court recently upheld the IRS’ position that a client filling in calendar notations after the fact would not meet the requirements for documentation to substantiate a mileage deduction. This is a critical decision to communicate to clients as many are currently operating under the assumption that they could “recreate” their mileage logs using their calendars were they to ever be faced with an audit.
Instead, the IRS maintains that:
“No deduction is allowed for vehicle expenses unless the taxpayer substantiates, by adequate records or sufficient evidence corroborating his own statements, the amount, time and place and business purpose for each expenditure. Substantiation by “adequate records” generally requires the taxpayer to “maintain an account book, diary, log, statement of expense, trip sheets or similar record prepared contemporaneously with the use of the vehicle, as well as evidence documenting the expenditures.”
What does that mean for clients? It means they need to be recording their drives as they happen.
One app I frequently recommend to clients is MileageIQ. It uses GPS tracking on your phone to track drives automatically when you get in and out of your vehicle. Both the mobile and the desktop app then allow you to categorize the drives as personal versus business.
The app further allows you to make notes on business drives as to the person you’re meeting with, the purpose of the trip, etc. The desktop app allows you to print reports and the app can even “memorize” a drive you do frequently, for example, your morning commute.
Mileage has long been a most loved audit area for the IRS because they know that most taxpayers are not meeting the documentation requirements and are likely to owe on the lost deduction. Don’t let your clients fall into this category.