IRS AUDIT ISSUES – Vehicles Expense
By Patricia Jones CPA/ABV/CFF CFE
IRS is known to audit small business owners for automobile expenses. A business owner is usually extremely busy running the business and not paying attention to the recordkeeping requirement needed for the automobile deduction. If you are self-employed, the deduction can save you thousands of dollars in taxes. You can choose to either take the actual expenses of the vehicle or standard mileage allowance. Whether you use the actual expenses of the vehicle or the standard mileage rate, you need to keep mileage records to claim the deduction.
In order to audit proof yourself for this deduction you need to be tracking your mileage. IRS will allow a Mileage Sampling. The mileage log should indicate date, destination, business purpose, odometer start and stop, total miles.
If you have not kept track of your business mileage, you might consider mileage sampling. It involves maintaining a log for three (3) consecutive months. IRS says you may use a three month selection if it is representative of the entire tax year and could be substantiated with your appointment calendar.. If you decide to use the mileage sampling, you will need the following four odometer readings - beginning of year January 1, beginning of three month log, ending of three month log, and reading on December 31 year end. Remember in an audit situation, if you don’t have the substantiation to support your business deduction, the IRS will disallow them. Always better to be prepared in an audit situation