Are You Tracking Mileage and Travel Expenses the Right Way?
If there’s one task at tax time that most people don’t prepare for, it’s providing documentation that allows you to take deductions for mileage and travel expenses. Although IRS audits overall may be relatively rare lately, these deductions are almost always reviewed, so it’s safer to play by the rules.
In some cases, the IRS will look for clues that you estimated your mileage or expenses, or retroactively created a record for everything on the same day. For example, if you have big round numbers, that’s an obvious sign that you estimated. If you have a handwritten journal, it’s easy to tell if you sat down and wrote everything on the same day. However, the IRS could also randomly choose you for an audit, regardless of what’s on your tax return.
As a rule of thumb, if you’re going to claim a deduction, you need to be able to produce documentation to validate that claim. That could be an account book, log or similar record, but it must have been prepared and maintained in a contemporaneous manner. If you’re going to follow the letter of the law, these are details you need to include.
Tracking Mileage and Auto Expenses
The biggest reason why most people tend to estimate mileage is that there are so many details to track. While it’s hard to argue with that claim, the IRS doesn’t want to hear excuses. They have very strict documentation requirements, so you need to keep a thorough, accurate log of mileage and expenses. Otherwise, the deduction will be disallowed.
Remember, you can’t claim commute mileage between home and office. You can claim trips between offices, office and client, and home and client. Start by noting the vehicle’s odometer readings at the beginning and end of the calendar year. According to IRS Publication 463 for 2017, you need to document the following information for each trip to qualify for a tax deduction for mileage.
- The date of the trip
- The address of the starting point and destination
- The vehicle’s mileage at the beginning and end of the trip
- Tolls, parking, and other trip-related costs
These records must be kept for three years from the date your return is filed. Information can be recorded and maintained in a notebook, a spreadsheet, an online or cloud-based calendar such as Outlook, Google Calendar or iCalendar, or a mileage tracking app.
If you conduct an online search for mileage tracking apps, you’ll find a list of helpful ones. Some are very basic, while others have a lot of bells and whistles. There are also more holistic apps for tracking all business expenses, including mileage, receipts, travel, technology, etc.
If you want to claim the Standard Mileage Rate, which is 53.5 cents per mile for 2017, the information detailed above will satisfy IRS requirements. If you want to claim actual auto expenses, you need to show evidence of repairs, maintenance, inspection fees and other expenses. You’ll be able to deduct a portion of the actual expenses based on what percentage of the vehicle’s use is devoted to business.
Tracking Travel Expenses
Business travel is common, whether by airplane, train, bus or car. You might have to go out of town to attend a conference, meet with a client, or participate in continuing education. These expenses are deductible, but only if you maintain detailed records.
To claim travel expenses, you need to record the costs for travel, lodging, and meals for each trip. These three totals must be separated. Incidental expenses, such as taxis, shuttles, fees, and tips, can be lumped together. You also must record the date you leave and the date you return for each trip and indicate how many days of the trip were spent on business activities. Finally, the business purpose of the trip must be noted.
Keep in mind that if your spouse or family travels with you, there are other rules that limit the deductible amounts to those related to business. For example, the plane ticket for your spouse is not deductible but the hotel room is since you need to stay there anyway.
Instead of assuming you won’t be audited for mileage and travel expense deductions, assume you will, and plan accordingly. Yes, tracking this information can be a hassle, but dealing with an IRS audit, especially when you’re unprepared, creates a much bigger headache.