Navigating IRS Audit Mileage Records: Essential Tips for Compliance
Emily Maina
Last update on:
January 20, 2025 1:43 PM
Published on:
If you plan to deduct vehicle mileage on your taxes, you’ll want to make sure you maintain accurate mileage records throughout the year. When it comes to recording miles for business purposes, the IRS has quite strict guidelines surrounding which details need to be included.
If your business were to be audited, severe consequences such as penalties and denied deductions could result from failing to keep precise mileage records. Small firms, independent contractors, and workers who use their cars for work should all maintain thorough mileage reports – not only to remain IRS compliant, but to optimize tax savings.
In this article, we will take a look at what mileage documentation is required for an IRS audit as well as a list of typical mistakes to avoid. With the help of this guide, you should be able to confidently navigate the rules and regulations set forth by the IRS regarding mileage recordkeeping.
For your mileage logs to be considered IRS compliant, they must include a series of predefined elements. The IRS requires the following information when reporting mileage expenses:
1. Date of each trip: Note the exact date that the trip occurred..Ex: Traveled to Mr.Smith’s house on June 12, 1984.
2. Starting and ending destination: Records should indicate where the trip started and ended, generally recorded as addresses and name of location. E.g. ''Start: Office, 123 Main St., Springfield; End: Client's Office, 456 Oak Ave., Shelbyville.''
3. Purpose of the trip: You should specify the reason for the trip in business terms (ex.: meeting with a client or site visit). Avoid vague descriptions such as ‘work-related’.
4. Year-end odometer readings: A precise reading of the odometer on January 1st, 31st, and December 1st is required to compute all annual mileage. For each trip, the odometer readings would need to be logged at the beginning of the trip and at the end of the trip.
5. Total annual mileage: Total annual mileage includes business and personal travel. So if you drove 20,000 miles altogether, and of those, 15,000 miles were for work, the business-use percentage is 75 percent.
6. Proof of expense patterns: Include expenses like gas, tolls, and parking fees if you're using the actual expense method rather than the standard IRS mileage rates.
Common mistakes to avoid
If you want to maximize your tax return and successfully claim all of your deductions, there are certain practices you will want to avoid during IRS audits.
Below are some of the most commonly seen mistakes that businesses make when it comes to mileage reporting and how you can successfully solve them.
Absent or incomplete mileage logs. Deductions are typically denied when there is not enough trip information recorded. For instance, simply recording the reason for travel as "travel for work" is not specific enough. Be as descriptive as possible when recording trip details – "travel to meet Bruce Jones regarding product implementation planning” has a higher chance of being accepted during an audit.
Failing to document mileage during travel. Relying on your memory of odometer readings and trip details is never a good practice. Either you will overestimate the actual mileage driven and end up owing the IRS, or underestimate travel and miss out on deductions.
Not separating personal travel from business miles. If you run personal errands on company time, you will need a system in place to separate these miles from business travel. The IRS terms mixing personal and business miles together as “commingling”, and it’s a practice that should be avoided if you want to avoid an IRS audit.
Recording estimates instead of actual mileage. Providing rounded or “approximate” mileage figures sets off alarms and often results in an IRS audit. Make it a habit to always write exact amounts, such as "23.7 miles", rather than "approximately 25 miles".
Failure to document modifications in vehicle usage. When your employees use their personal car for work related purposes, all documentation should reflect the change in type of travel. Odometer recordings should list when you began using the car for business related purposes and when the business trip ended.
Not preserving supporting documentation. As further evidence of vehicle usage, be sure to keep all gas, toll, and parking receipts on file.
Importance of timely recordkeeping
Imagine you made multiple stops during the day and didn’t record any odometer readings or client locations. You would be relying solely on your memory to recreate your daily mileage log. In the section above, we pointed out that failure to keep mileage records during travel ends up being very confusing, not just for the driver trying to retrace their steps, but for the IRS when an audit takes place.
There are a variety of ways you can document and record daily mileage. Some companies use paper logs and spreadsheets – which come with their own host of problems, or opt for mileage tracking apps like Timeero.
A mileage tracking app allows you to process mileage reimbursements and approvals faster, boosts productivity by reducing administrative tasks and helps you easily comply with IRS requirements. Mileage tracking apps prove to be more efficient and accurate than manual tracking systems.
Timely and accurate mileage logging is important for several reasons.
Claiming tax deductions
Mileage logging allows you to deduct the cost of business-related travel from your taxes. The IRS prefers that mileage is logged at or near the time of the trip, but weekly updates are usually considered acceptable.
Proactive vehicle maintenance
Regularly tracking mileage can help you anticipate when your vehicle may need servicing, which prevents breakdowns, reduces the frequency of repairs, and keeps your vehicle in good condition.
Meeting employer requirements
Your employer might ask you to record odometer readings more frequently than the IRS requires. Recording mileage in a timely manner helps employers budget expenses and adjust staffing levels as needed.
Related examinations: Taxpayers are selected for audit if their business partners or related investors were also selected for audit.
If your account is selected for audit, you will be notified by mail. The IRS does not initiate an audit by telephone. It conducts audits either by mail or through an in-person interview to review your records. The interview may be at an IRS office (office audit) or the taxpayer's home, place of business, or accountant/representative’s office (field audit). If they conduct the audit by mail, the letter you receive will request additional information about certain items shown on the tax return such as income, expenses, and itemized deductions. You can request a face-to-face audit if you have too many books or records to mail. The IRS provides contact information and instructions in the letter you receive.
The IRS will provide you with a written request for the specific documents they want to see. When conducting the audit, they will ask you to present documents that support the income, credits, or deductions you claimed on your return. You would have used these documents to prepare your return, which means you are not required to create new files. Your notice will instruct you on how and when to present your records. If your audit is conducted by mail, the address to mail the requested records will be on your notice. If your audit is conducted in person, bring the records with you.
Organizing your business records will speed up the audit process and prevent errors and misunderstandings. Organize documents according to the year and type of income or expense and include a summary of transactions. You must include the circumstances surrounding any document you send.
When it comes to mileage tracking, your mileage records must show the following:
The total number of miles driven for each work trip
The date of travel
The time you arrived at and departed each location
The address of each location visited
When sending documents to the IRS, remember to only send copies instead and not original documents. The law requires business owners to keep all records you used to prepare your tax return for at least three years from the date the tax return was filed.
Note: When mailing in your tax documents, always request confirmation from the shipping or mail provider that the IRS has received your response.
How to track mileage effectively and ensure compliance with IRS standards
Maintaining accurate and detailed mileage records is essential for securing vehicle-related tax deductions and preparing for potential IRS audits. Timeero can help you track mileage easily and accurately, preparing you for potential audits.
Timeero's mileage tracking software is designed to capture your employees’ driving data in real time. Employees clock in through the mobile app, and their mileage is tracked automatically as soon as driving speeds reach a predefined threshold.
Timeero automatically tracks mileage.
GPS mileage and location data is captured at intervals of approximately 150 feet. However, mileage is only recorded when the driving speed surpasses 4.47 miles per hour.
To enable mileage tracking for employees, you must be an account administrator. This can be done within the 'User Settings' section. To activate tracking for a specific employee, locate their profile, click the edit icon, and then select the 'Track Mileage' option. If your company utilizes a job-based system, you can also enable mileage tracking at the job level to track mileage specifically related to those particular tasks.
You can turn on mileage tracking for specific employees.
Use Timeero to simplify compliance during IRS audits
No one likes being audited, but audits are nothing to be afraid of when you have Timeero by your side. Coupled with an understanding of IRS requirements, Timeero can help you maximize your tax benefits while remaining compliant with IRS regulations.
Don’t spend more time on mileage tracking than you have to.
Leverage Timeero for efficiency and accuracy in mileage recordkeeping.
Emily Maina is a tech-savvy writer with a passion for creating content. With years of experience in the industry, she is well-versed in the latest trends and developments in the tech industry. When she’s not working, Emily enjoys exploring the great outdoors or watching her favorite shows.
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