The Most Important Thing in the tax world is to survive an audit without extra cost and hassle.
And, the most important thing in an audit is to have a proper business log documenting vehicle and meal expenses.
You've heard all tax professionals talk to you about this in writing or otherwise. Here's what the Internal Revenue Manual tells IRS auditors to demand during an audit: (1)
1. Send copies of repair receipts, inspection slips, and other records showing total mileage for the year.
2. Send copies of logbooks and other records to support business mileage claimed.
3. Provide a copy of your appointment book or calendar of business activities for the year.
4. If you are claiming actual expenses, please provide copies of paid bills, invoices and canceled checks or automobile expenses. These would include gas, oil tires, repairs, insurance, interest, tags, taxes, parking fees and tolls.
5. Send a copy of the bill of sale or other verification to establish your basis in the vehicle, including the trade-in of another vehicle
Folks, you need to prove that you has a business purpose for all mileage you claim and prove that you kept records at the time of the activities.
Why is this The Most Important Thing? Auditors will stop looking hard if the mileage documentation is thorough. They will look very hard at everything if the mileage records are incomplete or missing. Remember, they get paid based on finding more tax revenue during audits.
I know these mileage records can be a hassle to keep. But. there are many tools available to keep the complete records online, by phone, on paper, or on an app. Contact us for more guidance on these tools, since new options appear often.
Last of all, remember that vehicle usage and business expense deductions can save small business owners thousands each year in tax. The recordkeeping is worth it!
(1) IRM Exhibit 4.13.7-20