If you use your vehicle for business purposes, you may be eligible to claim a deduction for the expenses related to your business use. However, to do so, you need to keep a contemporaneous auto mileage log book when you claim a business deduction for the business use of your vehicle.
In this blog post, we will explain you the importance of maintaining a contemporaneous mileage log book and how it can help you avoid tax problems.
Mileage Log Book
A mileage log book is essential for substantiating your claim for the business use of your vehicle, as it provides evidence of the amount and nature of your driving.
Under the substantiation requirements, no deduction is allowed unless you, as a taxpayer, substantiate:
- the amount of each expense,
- the mileage for each business use of your vehicle and the total mileage for all use of the vehicle during the tax year,
- the date of each business use of the vehicle, and
- the purpose of each business use.
The IRS requires that you keep a mileage log book if you want to deduct your vehicle expenses using the standard mileage rate or the actual expenses method. The standard mileage rate is a fixed amount per mile that covers the costs of operating your vehicle, such as gas, maintenance, depreciation, and insurance. The actual expenses method allows you to deduct the actual costs of using your vehicle for business, such as gas, repairs, tires, registration fees, and depreciation. However, regardless of which method you choose, you still need to keep a mileage log book to prove your business use.
Fail on Keeping Records
If you fail to keep a mileage log book or if your log book is incomplete or inaccurate, you may face serious consequences from the IRS. The IRS may disallow your deduction for the business use of your vehicle or it may limit it to a lower percentage, which could result in a higher tax bill, penalties and interest. The IRS may also audit your tax return and ask for additional documentation to support your claim.
Therefore, it is important that you maintain a contemporaneous mileage log book that reflects your actual driving habits and business activities. A contemporaneous mileage log book is one that is created at or near the time of each trip, rather than at a later date based on memory or estimates. A contemporaneous mileage log book is more reliable and credible than a reconstructed one, as it reduces the risk of errors and omissions.
Court Case
An example that illustrates the importance of keeping an auto mileage log is the court case Wolpert, T.C. Memo. 2022-070. In this case, the taxpayer traveled for his consulting business and deducted car and truck expenses on his Schedule C, Profit or Loss from Business. The IRS disallowed the $7,528 in car and truck expenses for taxable year 2016 because the taxpayer failed to substantiate the mileage under the substantiation rules mentioned above.
Conclusion
By maintaining a contemporaneous mileage log book, you can ensure that you claim the correct amount of deduction for the business use of your vehicle and avoid any potential problems with the IRS. A mileage log book is not only a tax requirement but also a good business practice that can help you track your expenses and optimize your profitability.
Check here our video about this case. We also have other videos on our YouTube channel that you might find useful.
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This material is for informational purposes only. It does not constitute tax, legal or accounting advice.