With tax season well underway, many people are scrambling to make sure their records are ready for the IRS. In truth, nothing attracts more scrutiny from the IRS than business mileage expenses. But are the records required for deductions the same as the ones for reimbursement? How do you know which records to keep? Here are answers to some common questions from Tallie users.
Q: My employer reimburses me for mileage expenses. Do I need to keep a mileage journal within Tallie?
A: No. Mileage journals are required by the IRS when deducting expenses not already reimbursed by your employer. You may not seek a deduction for reimbursed expenses–therefore, there is no need to keep a mileage journal within Tallie. The information your employer requires may vary based on specific internal controls–however, Tallie will automatically inform you if your expenses are in violation of company policy before you submit your expense reports.
There are a number of ways to record mileage in Tallie. If using an Android phone or tablet, you can actually track your trip in real-time just by hitting “start” and “stop” at the beginning and end of your route. Tallie will automatically record the date, addresses, and miles traveled.
This feature will soon be available in our Tallie iPhone app as well. In the meantime, if accessing Tallie through your browser or iPhone, just enter your start and stop locations via our mileage submission tool. We’ll chart your route through Google Maps and calculate the total distance.
Depending on your company’s policies, you may also need to provide the reason for your trip, as well as the Class, Billable states, Department or Project, just as you would with any other expense.
Q: I do not receive reimbursements for my mileage expenses, so I want to claim a deduction. What proof does the IRS require?
“Documentary evidence ordinarily will be considered adequate if it shows the amount, date, place, and essential character of the expense.” – IRS Publication 463
A: The IRS is very strict about proper mileage documentation. However, sufficient records are more a matter of consistency than complexity. First, let’s assume that you have decided to use the standard mileage rate provided by the IRS. For each trip that you plan to deduct, you must write down:
• The number of business miles traveled.
• The date(s) of your trip.
• Your destination, and the business purpose of your visit.
• The total number of miles driven during the tax year.
All in all, it’s not much more than what your boss would expect to see on your expense reports. Here’s the tricky part: this information is only considered adequate proof if it’s been recorded consistently throughout the year. A mileage journal, a diary, a pad of paper you keep in your car are all fine, provided that you write the information down in a “timely and accurate” manner (IRS Publication 463).
The IRS does not accept estimates, however accurate your memory may be. At the very least, you should be keeping a weekly record of all your expenses (IRS Publication 463). It is NOT necessary to record an odometer reading for each trip. You only need to record the odometer twice a year: once on January 1st, and then again on December 31st.
If you’d rather not use the standard mileage rate, you can deduct your actual vehicle expenses instead. This method sometimes leads to a bigger deduction, but it requires significantly more recordkeeping. You must include the cost of maintenance, insurance, licenses, oil, repairs, tires, tolls, depreciation, and registration fees for your vehicle. Then, you will have to calculate how much of these costs can be attributed only to the number of miles driven for business purposes. If audited, you’re required to provide all relevant receipts.
Know that once you choose to deduct the actual vehicle expenses, you may not switch to the standard mileage rate for that vehicle again.
Q: I track my mileage and submit it on my expense reports. I get some reimbursement from my employer, but it’s less than the rate allowed by the IRS. Am I entitled to any kind of deduction?
A: Yes, but only a partial one. You may claim no more than the difference between the allowable IRS deduction and your reimbursement. You may also choose between the standard mileage deduction rate and actual vehicle expenses, as outlined above. In either case, you will be required to provide your detailed mileage log above, receipts (if deducting actual vehicle expenses) and a record of your reimbursements.
Looking for an easy way to record mileage for your expense reports? Use Tallie’s award-winning expense management software FREE for 14 days – no credit card or commitment required. Or, schedule your free Tallie product demo now.