Stefan Negritoiu for Biznik.com writes: Tracking mileage expense for tax deductions is annoying, time consuming, and requires remembering to log business trips. Thankfully, there are software tools that retroactively go through your calendar to remind you of forgotten business travel and automatically calculate distances.
Some years ago when Biznik made the Shine documentary someone was quoted saying "there's a lot of life happening [outside of work] between 9 and 5" and that really resonated with me. As a software entrepreneur I dedicate my work to building products that reduce business overhead so we can spend more time actually living life.
I'm passionate about business in general but if there's one thing I truly dislike is having to work twice for every task: once to complete it and again to report on it whether is on a timesheet, client bill, for tax deductions or for an expense reports. The reporting overhead is wasteful and unproductive. We end up either leaving money on the table because they we don’t document all the expenses (ex: unclaimed mileage expenses when filing IRS taxes). Or we waste time because the time required to document some time or expense on a bill are comparable to the value of the work itself.
So what do we do? We guesstimate to save time. But having a mileage log is particuarly important, because there is a recent IRS audit memorandum in regard to the preparation of mileage logs after the federal tax compliance has been filed. If the IRS auditor thinks you generated the mileage log after you filed the return, they may disallow the mileage deductions. If your return was prepared by a third party, the IRS may subpoena from the third party a copy of the documentation you provided for the mileage deduction.
Over the past several years, the IRS has continued to refine audit points to find taxpayers that are not compliant with the Internal Revenue Code (”IRC”). Record keeping is becoming paramount in defending the values reported as deductions to the Internal Revenue Service (“IRS”). In 2012, there were several cases that went to Federal Tax Court addressing mileage logs used to claim the mileage deduction. Most notable is the Moore case (Moore, T.C. Summ Op 2012-16). The taxpayers had mileage logs, but those mileage logs did not meet the IRC requirements and thus a component of the disallowed expenses was the mileage reported. In 2013, the Tax Court addressed mileage logs generated after the return was filed (Longino T.C. Memo 2013-80 and Daniel-Berhe T.C. Summ Op 2013-33), in each case the mileage deduction was disallowed or substantially reduced.
To ensure that your mileage deduction meets the requirements of the IRC, our accountants are asking all clients to provide a mileage log to substantiate their mileage deductions for 2013. While this sounds ominous, it doesn’t need to be to administratively difficult. There are several methods for tracking mileage, from a piece of paper that states the date of the mileage, the business purpose and the number of miles to more complex electronic systems. Since most business mileage goes through appointments on your calendar, using an electronic interface to your calendar makes the mileage log easier to compile. Of course we recommend using MileLogr to easily create your mileage log, but regardless of the method or program you use to track your mileage, please be informed that without a mileage log that meets the IRS requirements, your mileage deduction is at risk.
Even though few return have had inquires from auditor, it’s much safer to take the position that every return will be audited. Having the documentation readily available to respond to the IRS is critical to making a challenge of your deductions successful. Therefore, plan ahead and supply your accountant with a copy of your mileage logs for the preparation of your 2013 federal tax compliance. And don't forget to include parking and toll costs. Small amounts do add up.
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