Mileage Deductions with 75% Less Effort
The mileage deduction can be a shockingly large deduction that provides significant savings on your tax return. This makes it enormously popular with taxpayers and unfortunately...the IRS.
However, all you need is proper documentation to deduct away, enjoy the savings, and never lose a minute of sleep.
I know "proper documentation" sounds like spending time doing inconvenient and dreary recordkeeping, but believe it or not the IRS does allow a short cut!
Take advantage of this generous short cut and eliminate up to 75% of the inconvenient and dreary recordkeeping. Sounds unbelievable right? But it's true!
Sampling will work for both the standard deduction and actual expenses methods for deducting car expenses.
IN A NUTSHELL
You use a peroid of time, say the first week of each month, that is typical of what you normally drive and use those miles to calculate what you drive for the entire year. You need to document a minimum of ninety (90) days. That translates to 75% less recordkeeping.
NOW FOR SOME DETAILS
Records must be written and timely kept
The IRS considers timely to be weekly. This is actually a reasonable time frame - any longer it becomes difficult to recall details and daily isn't always realistic.
Document the following information:
Date, destination, business purpose, miles traveled and vehicle used. Only the business miles need these details, but you will need a grand total of all miles driven in the year for each vehicle.
How you organize your records is up to your personal choice - a basic note pad to a smart phone app or anything in between. The best method is the one you can easily include in your routine.
Only business miles are deductible
Commuting miles are never deductible. This means the miles driven from your home to the first business stop of the day and from the last business stop of the day to your home.
You leave your home in the morning and drive to the Post Office to mail business documents - these miles are commuting miles.
You drive from the Post Office to your office building and then to visit several customers - these are deductible business miles.
You drive home from the customer's office - these are commuting miles.
Bonus Time Saver
Per the IRS, "continuous uninterrupted use with only minimal personal miles" can be documented with a single record.
If you drive to various customers all day and the only non-business miles were to get lunch, then you can record all the miles that day together. There is no need to record each stop separately.
Have evidence the ninety (90) days is typical
A calendar or appointment book showing appointments and destinations for the year is the best method. You probably have one already. If you can't show your sample miles are typical the deduction will be disallowed. Remember you are still saving a lot of time and effort.
Keep your written logs for three (3) years after you file your tax return
For example - if you file your 2015 income tax return on or before April 18, 2016, then keep your logs until April 15, 2019. (Be aware there are special circumstances that can extend the three-year period.)
If your logs are lost or destroyed in an event beyond your control you are allowed to reconstruct your records. This really means beyond your control - fire, flood or other casualty. "The dog ate it," or "it was destroyed in a coffee spill" will not work! Trust me, this deduction is worth taking the time to properly document.
Some Key Take A Ways
Following the IRS requirements is extremely important. Even if it is completely obvious you use your vehicle for business, the deduction can be 100% disallowed if your recordkeeping does not meet standards. This issue has been ruled on many times in tax court. You are very unlikely to keep the deduction if documentation is lacking.
Everybody makes mistakes.
Don’t panic if your documentation isn’t 100% perfect.
What you want is a set of records that clearly demonstrates you worked to comply with the requirements in good faith and are as complete as possible. An IRS agent has seen all the mistakes before and has heard all the excuses, which makes them pretty good at telling genuine effort from carelessness.
Taking advantage of sampling in your recordkeeping is an efficient time saving tool that helps you comply with IRS standards. It is not a failsafe method to compensate for bad recordkeeping.
Taking a mileage deduction isn’t an “audit flag”, but it is a frequently audited expense. Take recordkeeping seriously so you can relax and enjoy the tax savings.
Once you find a system that works for your business, and you create a habit of using it, documenting your mileage won’t be a burden.
The tax savings will be a benefit!
For even more time saving tips, download my free guide, "7 Ways to Save Time & Money in Business (and How to Stop It!).