The short answer: No, odometer readings are not required, but they're a good idea to keep anyway.
As a self-employed individual or small business owner, optimizing your tax deductions is essential for maximizing your financial resources. One valuable deduction to consider is the business mileage deduction, which allows you to offset the costs of using your personal vehicle for business purposes. However, to fully benefit from this deduction, it is crucial to maintain accurate and sufficient documentation. In this blog post, we will delve into the significance of odometer readings in tracking your business mileage accurately and introduce Everlance as an invaluable tool to help you report and document your mileage effectively.
Let's talk about what an audit is first. An audit refers to a detailed investigation by the government to verify the accuracy of your tax return. The purpose of an audit is to ensure that people are paying the correct amount of taxes and to prevent any dishonest or incorrect practices.
During a tax audit, the government carefully examines your tax return to check if all the information provided is correct and follows the tax laws. They may ask you questions or request additional documentation to support the information you provided. The goal is to ensure that everyone is following the rules and paying the right amount of taxes.
When it comes to business taxes, you are taxed on your profits, not your revenue. This is a key distinction. The government understands that it costs money to run a business, so business expenses are declared on your return and subtracted from your income. Why do we have audits? To ensure business profits are not understated, and everyone is paying their fair share.
The burden of proof in an audit falls to the taxpayer. You are saying "I have $100 in revenue, I have $80 in expenses, I should be taxed on my $20 in profits" The IRS comes asking for proof and unfortunately, "just trust me" doesn't fly.
When it comes to mileage, the IRS requires "adequate records" in order to pass an audit, and this is very specifically laid out:
If you're expecting to find "odometer reading" you'll notice it's missing. The IRS asks for mileage for amount, date and time, destination, and purpose.
However, does that mean you shouldn't keep your odometer readings? No. In fact, you should. You'll notice under "amount" there's a specific ask on "the mileage for each business use" and "the total miles for the year." Total miles for the year is where an odometer reading will come in handy. This is for a number of reasons, but the main purpose is the IRS wants to make sure you're not claiming 20,000 business miles on a vehicle you put 7,000 total on.
Ultimately, we recommend keeping more than less, since the burden of proof falls to the taxpayer.
Related: IRS Mileage Log Requirements | Everlance
Let's backtrack to "the mileage for each business use" As you can see, this is a lot! Every home showing, or delivery, or ride to the airport you provide requires an amount, time and date, destinations, and purpose.
To simplify and streamline the process of tracking your business mileage and ensuring sufficient documentation, using a reliable mileage tracking tool like Everlance is highly recommended. (You had to know it was coming, right?) Everlance is a comprehensive mileage-tracking app that offers a range of features to help self-employed individuals and small business owners effortlessly manage their mileage records.
Everlance's automatic mileage tracking feature uses your smartphone's GPS to automatically detect and record your mileage as you drive. This eliminates the need for manual logging and minimizes the risk of human error. The app captures essential details such as the date, time, distance, and location of each trip, providing you with accurate data to support your mileage deduction.
With Everlance, you can generate detailed trip logs that include the exact route that you drove. These comprehensive trip logs serve as strong evidence to support your business mileage deduction during an audit, giving you peace of mind. These trips can be broken out by purpose as well, so if you're a side hustle extraordinaire, simply select your individual purpose and track throughout the year what jobs you're doing the most.
Related: Free IRS Mileage Log Template | Everlance
Everlance provides IRS-compliant reports that summarize your business mileage, making it convenient to report your deductible mileage on your tax return. The app allows you to export these reports in various formats, ensuring seamless integration with tax preparation software or easy printing for manual filing. If you use an accountant, Everlance also allows you to send directly to your accountant, without having to export!
Tracking your business mileage accurately and maintaining sufficient documentation is vital for maximizing your tax deductions and avoiding potential issues during an IRS audit. Odometer readings serve as a critical component of mileage documentation, providing a reliable measurement of the distance traveled for business purposes. However, leveraging reliable mileage tracking tools like Everlance can significantly simplify the process and ensure compliance with IRS requirements.
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