The new year is upon us. If you drive your car for business, this means that it is time to start your annual mileage log. This is the record of how many miles you drive your car for business during the year.
IRS rules require you to keep such a record to deduct your mileage--without it the IRS will disallow your mileage deductions in an audit. If you do a lot of business driving, this can cost you dearly: for many businesspeople, driving is their largest single business expense deduction. Unfortunately, because of widespread abuse by taxpayers, the IRS scrutinizes this commonly claimed deduction very carefully.
The IRS does not require you to keep your mileage records in any particular format. However, they must be made contemporaneously--that is, soon after you make each business trip. You can't wait until the end of the year to create your log based on your memory of each trip you took.
You may keep your log the old fashioned way using a mileage logbook. Here’s what to do:
- Obtain a mileage logbook, readily available in any stationery store, and keep it in your car with a pen attached.
- Note your odometer reading in the logbook at the beginning and end of every year that you use the car for business. (If you don’t know your January 1 odometer reading for this year, you might be able to estimate it by looking at auto repair receipts that note your mileage.)
- Record in ink (not pencil) your mileage and note the business purpose for the trip every time you use your car for business.
- Add up your business mileage when you get to the end of each page in the logbook. (This way, you’ll have to add only the page totals at the end of the year instead of all the individual entries.)
- If you commute to your office or other workplace, figure out how many miles you drive each way and note in your appointment book how many times you drive to the office each week.
At the end of the year, your logbook will show the total business miles you drove during the year. You calculate the total miles you drove during the year by subtracting your January 1 odometer reading from your December 31 reading.
If you drive about the same amount for business throughout the year, you may be able to use a sampling method instead of keeping track of all your business trips throughout the year. Under this method, you keep track of your business mileage for a sample portion of the year and use your figures for that period to extrapolate your business mileage for the whole year. For details, see Tracking Business Mileage the Easy Way with the Sample Method.
The IRS prefers paper and ink mileage logs because they are harder to fabricate than electronic logs. Nevertheless, you have the option of using an electronic log and the IRS is supposed to accept it. There are many different types of electronic mileage logs, ranging from simple spreadsheets to highly sophisticated smartphone apps that monitor your mileage via GPS.
Whatever type of mileage log you use, just make sure it is complete, accurate, and made contemporaneously.