Higginbotham Companies, Inc.

This month I’m going to address your mileage log.  Your mileage log is to support the miles driven for business reasons.  Sole proprietors, filing on Schedule C, and other business entities are still eligible for a business deduction for the use of their automobile.  What do you need to pass an audit of your mileage, which by the way, is a hot spot for examination.  Once your audit examination begins, the examiner likes to see this record.  If the record is missing or lacking, the IRS examiner knows your other records are probably lacking, too. This is one record everyone hates to maintain and the auditor knows this.  A taxpayer’s failure to keep a mileage log on vehicles indicates that the activity under examination is not being conducted in a businesslike manner.  I’m not sure if you know this, but as a one-owner or husband-and-wife-owned business, regardless of whether it is a corporation, a partnership, or a proprietorship, you file are required to file Form 4562.  This form asks you for the following information about your vehicle(s) mileage:  Do you have evidence to support the business/investment use claimed? (If “yes,” is the evidence written?); List your total business/investment miles on each vehicle; List your total commuting miles on each vehicle; and List your total personal miles on each vehicle.  You also have to disclose whether the vehicles are used by either a sole proprietor or an owner of more than 5 percent of a corporation, a partnership, or another entity for up to six vehicles and you have to do an attachment if more than six.  This mileage log is the record to substantiate the proof you need to use for the tax form questions.  If you lucky enough to receive the inquiry as a correspondence audit, then it requires you to provide the following information to support our deduction:  Copies of repair receipts, inspection slips, and other records reflecting the vehicle mileage on that date; Copies of logbooks and other records to support the business mileage claimed; A copy of your appointment book or calendar of business activities for the year; and if you are claiming actual expenses, copies of paid bills, invoices, and canceled checks for automobile expenses.  These would include gas, oil, tires, repairs, insurance, interest, tags, taxes, parking fees, and tolls with a copy of the bill of sale or other verification to establish your basis in the vehicle, including the trade-in of another vehicle.  This information provides the auditor the opportunity to match the repair bill odometer reading with the mileage in your logbook; the inspection slip odometer reading with the mileage in your logbook; the mileage between repair stops, to see whether that ties in with your claimed mileage; and establishes the business purpose that ties in with your appointment book or other calendar of business activities.  Each record should support the other and vice versa.  If you want to avoid your mileage deduction from being disallowed, keep a good mileage log. This includes not only the beginning and ending mileage, but who you went to see and the purpose of the trip.  The mileage log is often one of the first records that an IRS examiner will look at. A good mileage log shows that you know the rules and you respect them.  Many IRS audits end favorably and quickly upon presentation of a good mileage log.    I’m also want to express how thankful I am to provide my monthly article for you.  Our office hopes you have a wonderful Thanksgiving and grateful for what you have.  Happy Thanksgiving!!!  This is a very brief overview.   For details and specific assistance in applying the general information in this article, call us at your earliest convenience or contact your tax advisor.   Provided by Tracey C. Higginbotham, E.A., (321) 632-5726, a member of the National Society of Accountants.