If you use your personal vehicle for business purposes, it is essential to keep accurate vehicle expense records to protect you in the event of an IRS audit. Although the IRS does not require a specific record-keeping process, a mileage log is typically the most effective way to keep track of the business miles you drive. You may keep a log with old-fashioned pen and paper or by using a computer program.
The IRS offers two methods for deducting business-related vehicle expenses. With the actual expenses method, you may deduct expenses such as gas, insurance, depreciation and repairs, based on the percentage of business use versus personal use of the vehicle. With the standard mileage rate method, the amount of your deduction is based on the number of business miles you drive during the year, using a figure of 55.5 cents per mile as of 2012. The standard mileage rate method also allows you to deduct the cost of parking and tolls.
According to William H. Rosenberg, a Los Angeles attorney and tax accountant who is also a former IRS auditor, if you use the standard mileage rate method, the IRS tends to prefer a manual mileage log over a computer-based mileage program for documentation purposes, as it is relatively easy to create a falsified computer document. Each entry should include the date, the starting point and business destination, the purpose of the trip, and the number of business-related miles driven during the trip. Proof of vehicle ownership is also required. Your log should also show the total number of business miles driven at the conclusion of the tax year.
Rosenberg indicates that the IRS will accept computer-generated mileage logs, although they are more likely to come under close scrutiny than paper mileage logs. Computer programs such as Trip Mate allow you to document mileage using your handheld electronic device. If your vehicle is equipped with a global positioning system, it will track all the vehicle's movements, although you will still need to keep a record of which trips were for business purposes. It's also a good idea to back up your system to protect against loss of data resulting from a crash.
The IRS indicates that you should keep all expense records, including mileage documentation, for three years from the due date of the tax return for a given year. However, Lee Czarapata, director of business vehicle services for research firm Runzheimer International, recommends keeping your logs for seven years against the possibility of an IRS audit. A computer-based mileage log may make it more practical for storing several years' worth of records.
- IRS.gov: Publication 552
- The New York Times/Business: Worse Than Keeping a Mileage Log: An I.R.S. Audit
- IRS.gov: Publication 463
- Internal Revenue Service. "IRS issues standard mileage rates for 2020." Accessed Feb. 3, 2020.
- Internal Revenue Service. "Standard Mileage Rates." Accessed Feb. 3, 2020.
- Cision PR Newswire. "Runzheimer Data Sets 2017 IRS Business Mileage Rate at 53.5 Cents." Accessed Feb. 3, 2020.
- U.S. Government Publishing Office. "H. R. 606." Accessed May 1, 2020.
- Internal Revenue Service. "Publication 463 Travel, Gift, and Car Expenses," Pages 13-15. Accessed Feb. 3, 2020.
- Internal Revenue Service. "Publication 526 Charitable Contributions," Page 6. Accessed Feb. 3, 2020.
Chris Joseph writes for websites and online publications, covering business and technology. He holds a Bachelor of Science in marketing from York College of Pennsylvania.