Red flag during an IRS audit
If you receive a letter from the IRS letting you know that your business is being audited, there is one record that receives special attention and can create a nightmare during an IRS audit. It’s information that an auditor uses to help determine whether you keep good records. If you don’t maintain a good mileage log an auditor will assume your other records will be lacking too.
It’s important to get off to a good start during an audit. If an auditor believes that you don’t keep good records, he is more likely to look at your records more thoroughly.
You want the auditor to begin thinking that he is wasting his time and should be working on someone else’s return which will provide more valuable results. Your goal should be to get out of the audit as quickly as possible.
The mileage log is often one of the first records that an IRS examiner will look at and for a good reason. A good mileage log shows that you know the IRS rules and are following them.
The IRS has techniques to help determine whether your log is accurate. During an audit the IRS will request information in order to prove that your records are made up. This information includes:
- Copies of repair receipts, inspection slips, and other records which will show the total mileage for the year.
- Copies of your logbooks and other records to support the business mileage claimed.
- A copy of your appointment book or calendar of business activities for the year.
- If you are claiming actual expenses, receipts for fuel, repairs, insurance, tags, taxes, parking, tolls, interest and a bill of sale. If you are deducting actual expense, you will still need to keep a mileage log to allocate your deductible business expense.
The IRS will match the mileage between repair stops, to see whether it exceeds your mileage claimed in your mileage log during that period. If your mileage log exceeds the mileage shown between repair shop visits, the auditor will know that you have made up a mileage log. Once the auditor realizes that you are making up records, your information for the audit will be intensely scrutinized.
The IRS will also be looking at your appointment book to determine whether your mileage has a business purpose.
Many business owners hate keeping up with their mileage log. However, taking a few minutes each day can help you to avoid major problems during an IRS audit.
If you want to avoid turning an audit into a nightmare, keep a good mileage log.
David Zubler is a tax accountant and Enrolled Agent representing clients before the IRS with over 25 years of tax experience. He is the author of four tax books and is the founder and president of Your Tax Care. The company provides business and tax education to the public at its website, YourTaxCare.com. David can also be contacted by email at firstname.lastname@example.org