When it comes to itemized tax deductions, indisputable documentation is vital. Any sign that suggests a lack of credible evidence can lead to the “red-flagging” of your tax return and a possible audit. If an audit reveals a reason to doubt your supporting documentation, a decision against you could result in considerable interest and penalties which you otherwise might not have owed. Statistics show that deductions for travel, auto and entertainment are at the top of the IRS’ target list because it is all too common for people to either fail to keep the required documentation or to take deductions that have questionable business purposes.
Oftentimes the most recurrent of these types of deductions is mileage driven for business—also one of the most cumbersome to track. This is because data collection usually depends on something inherently faulty: human memory. Memory seems to work fine when you’re sitting on the shore of a lake reflecting back on the good times in your life, but when you’re stuffing breakfast into your mouth while rushing out the door to make an appointment while your cell phone is ringing, remembering to check the odometer or log the mileage for your trip can fall through the cracks.
Over time, there have been many inventive ways to reconstruct mileage that has not been logged properly. One method is to enter your starting and finishing addresses into Google Maps, MapQuest or the like, and calculate the mileage from their data. Another method is to guesstimate mileage based on former or similar trips. This method falls apart when you wait too long and forget about the trip, or when you combine the trip with several others and make six different stops including business and personal destinations
“I’ve always used the old pen and paper method to track my mileage,” says Brandon Lansford, who generally drives 25,000 – 30,000 miles a year. “On every job, I’d have to go back and look at the odometer mileage of what I drove. The trouble is when you get in a hurry, you forget to set the odometer mileage tracker back to zero. And human nature being forgetful, I wouldn’t record the mileage for every single trip. I’d estimate it if I could, or just have to let it go.” This scenario leads to lost tax deductions and a tax bill that’s higher than necessary.
One gentleman in Austin, Texas, who drives 20,000 – 25,000 miles a year, had similar problems keeping track of mileage. “Basically, I fudged it,” he says. “I did what I could to log individual trips, but I had just a hodgepodge of methodologies that hopefully would hold up to an audit.”
The end result of forgetting and estimating mileage usually hits hard right about tax time when you’re trying to gather documentation for your deductions. Harold Miller helps his wife, Karin, put together her tax documentation every year, and mileage has always been problematic. “Logging mileage would always start out well at the beginning of the year, but my wife would become forgetful and start sporadically omitting it. By the time we got down to the end of the year, record-keeping wasn’t good and I had to re-create everything. It generally took me about a month to put it all together.”
While there still may be many other problems related to documenting deductions, new technology is making it easy now for those who must track their mileage. Some devices simply plug into your car and automatically track mileage wherever you drive. The devices are user-friendly, can transmit your mileage data to a Web site, and do not require you to install or download software. With these types of devices, you log into your own account, add notes as needed, and retrieve your trip log. Some systems use interactive mapping to help you allocate whether the mileage driven is for business, commuting, personal, medical, or charitable use. From the Web site you can edit and print out reports which can be used to substantiate your deductions accurately.
“[My device] goes on automatically when I start driving,” states one user of the plug-in device who used to estimate mileage. “At the end of the month, I go online and simply delete those trips that weren’t business-related. The reports are probably the biggest advantage of the product.”
A mileage tracking device solved the problem for the Millers as well. “I got tired of having to re-create everything for the IRS,” says Harold. “So, I started searching and found a great device. Now my wife can go online once a week and update the trips between the business, commuting and personal miles.” And now, instead of the month it used to take the Millers to put together their documentation, it’s as easy as printing out a report at the end of the year.
“Mileage tracking is automatically done with my device,” adds Lansford. “Another feature I like is that you can go to any address you have visited, click on it, and a map or satellite image shows that location. In my case…it’s great to be able to see a satellite image of the developments around a particular property. There are other ways of getting satellite imaging, but I like this method best because it takes me right to the location where I have been while I am editing my mileage records. That’s a real time-saving feature and now my tax records are complete.”
For claims adjusters and others who consistently drive their vehicles for business, a mileage tracking device is a useful tool for improving tax and business records.
, C.P.A. is a former executive with such companies as PriceWaterhouse Coopers
and JP Morgan ChaseBank
. You can contact Mr. Gelb at www.revenueminer.com
. For more information on mileage logging, visit www.mileagelogger.com