Who Should Keep Mileage Records?
Maintaining accurate auto mileage records is a crucial practice for individuals and businesses seeking to claim vehicle expenses on their taxes. This meticulous record-keeping is not just a recommendation but a necessity under the tax law, particularly under Section 274(d).
- Business Owners and Self-Employed Individuals: Those who use vehicles for business purposes must keep detailed records. This includes entrepreneurs, freelancers, and anyone who drives for business outside of regular employment.
- Employees with Work-Related Vehicle Use: Although less common due to changes in tax laws, employees who use their vehicles for work-related purposes and seek reimbursements or deductions must maintain accurate records.
- Taxpayers Seeking Deductions for Charitable, Medical, or Moving Purposes: In cases where vehicle use is related to charitable services, medical needs, or moving, maintaining mileage logs is essential for tax deductions.
Importance of Accurate Auto Mileage Records
- Compliance with Tax Laws: Accurate records ensure compliance with tax regulations, avoiding potential penalties or disallowed deductions. The IRS requires detailed documentation of business mileage to prevent abuse of vehicle expense deductions.
- Maximizing Deductions: Proper record-keeping can significantly enhance the legitimacy and size of vehicle-related deductions. Accurate logs provide clear evidence for the IRS, ensuring that all legitimate expenses are accounted for and deducted.
- Avoiding Tax Disputes: In the event of an audit, well-maintained records can swiftly address any questions regarding vehicle expenses, reducing the risk of disputes with tax authorities.
Understanding Section 274(d)
Section 274(d) of the Internal Revenue Code imposes stringent substantiation requirements for taxpayers seeking to deduct certain expenses, including those related to the use of vehicles. This section effectively overrides the Cohan rule, which previously allowed for estimates in the absence of detailed records.
Key Requirements of Section 274(d):
- Detailed Records: Taxpayers must maintain detailed records of each vehicle use, including the date, mileage, destination, and business purpose.
- Timely Documentation: Records should be made at or near the time of the expense. Reconstructed logs, created long after the fact, are generally not considered reliable by the IRS and the Tax Court.
- No Estimates: Section 274(d) does not permit estimates or approximations. Each claim must be substantiated with precise information.
In summary, the rigor in record-keeping mandated by Section 274(d) is not just a formality but a critical component of tax compliance and optimization. By diligently tracking every business-related mile, taxpayers can safeguard themselves against disputes and maximize their eligible deductions.
The Best Tools for Tracking Your Mileage.
For our Bookkeeping clients who are already using Quickbooks we highly recommend tracking your mileage in Quickbooks. This becomes easy when you download the Quickbooks app on your phone. https://quickbooks.intuit.com/accounting/mobile/#sms
Check out some additional popular mileage tracking apps.
- TripLog: Ideal for multiple employees and vehicles needing to track their mileage. It offers comprehensive features suitable for a variety of business needs (https://triplogmileage.com/).
- Stride: A completely free mileage tracker, Stride is popular for its ease of use and cost-effectiveness, making it a go-to choice for many users (https://www.stridehealth.com/tax).
- Zoho Expense: Recognized as the best all-in-one solution, Zoho Expense offers a broad range of features beyond just mileage tracking, catering to a diverse set of business requirements (https://www.zoho.com/us/expense/mileage-tracking-app/).
- Everlance: This app provides a free version for mileage tracking and is appreciated for its user-friendly interface and robust features (https://www.everlance.com/).
- MileIQ: A popular choice known for its simplicity and efficiency, MileIQ offers reliable mileage tracking, making it a preferred app for many individuals and businesses (https://mileiq.com/).
These apps stand out for their user-friendly interfaces, range of features, and adaptability to different user needs, from individual freelancers to large businesses.