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July 06, 2018

Maintaining Mileage Logs relating to Business Travel Expenses – There is an App for That!

    As tax attorneys in Columbus, Ohio, Nardone Limited routinely assists taxpayers with representation in tax examinations, tax audits, appeals, and civil litigation with the Internal Revenue Service and the Ohio Department of Taxation. As part of that representation, our tax attorneys routinely advise sole proprietors regarding when taxpayers may deduct certain transportation expenses relating to business travel on Schedule C of their Form 1040 U.S. Individual Income Tax Return. This article is a follow-up to our prior articles, including our most recent article, Recordkeeping Relating to Business Travel Expenses. Specifically, this article addresses various smartphone apps that a taxpayer can use to maintain proper documentation for their business travel expenses. As discussed in our prior articles, it is important for a taxpayer to maintain the proper records to avoid additional scrutiny by Revenue Agents during an IRS examination.

Tracking Business Mileage Expenses

    As discussed in our most recent article, Recordkeeping Relating to Business Travel Expenses, to deduct travel expenses on their tax returns, including business mileage and expenses, taxpayers are required to keep adequate records to substantiate the expenses. Generally, a taxpayer must prepare a written record for the documentation to be considered adequate. But, many times taxpayers fail to maintain the proper documentation, including a mileage log. As a result, taxpayers do not have the necessary documentation to properly report mileage deductions on their tax returns.

Nardone Limited Comment: From Nardone Limited’s perspective, the mileage expense and the business owner’s use of the vehicle, is one of the biggest abuses that exists when it comes to taxpayers.  They routinely fail to maintain the proper documentation and the tax return preparers routinely ignore this issue.  In fact, when you talk with many tax return preparers, they are concerned about losing clients if they do not deduct the automobile expenses regarding mileage, even if the taxpayers do not have proper documentation.  According to the tax return preparers, the clients routinely advise the tax return preparers that other accountants will do this for them.  But, we should be wary of those particular clients.

In our prior article, we provided detail regarding using the Standard Mileage Rate versus actual expenses, when deducting business mileage expenses. For both methods, it is important that the taxpayer maintains the proper documentation and records to avoid further scrutiny by IRS Revenue Agents. Fortunately, with updates in technology, there are apps that a taxpayer can download to his smart phone to make keeping the proper documentation relating to business travel expenses easier.

Apps for Tracking Business Mileage

    For a practical and easy way to track mileage, there are several apps that a taxpayer can download to their smart phone to track their mileage. Many of the apps, including MileIQ, are applications that you can download on your phone that run on the background of your phone. Then, the apps will note each time that you get into your car, and automatically track the mileage as you drive, without the taxpayer having to even open the app. Further, several of the apps give the taxpayer the option to swipe right or left to categorize the drive as a personal or business trip. The app will track the details regarding the taxpayer’s various trips, and then the taxpayer will be able to download monthly or annual mileage reports. The taxpayer simply has to input certain data, after downloading the app, including the odometer readings, to get started. Ultimately, some apps give you the option to edit and add additional information regarding each separate trip, including the specific purpose of the trip and any other necessary notes. We would certainly recommend that taxpayers add detail regarding the business purpose of each trip, to avoid further scrutiny by Revenue Agents during an IRS examination. Additionally, some of the apps give the taxpayer the option to take photos of receipts to keep track of other expenses, such as gas. This option would be helpful if you were using the actual expense deduction method when preparing your tax return instead of the Standard Mileage Rate method, as discussed further in our prior article.

Mileiq_dashboard
An example of the MileIQ dashboard.

    At the end of the day, whether a taxpayer is manually keeping a log or using an app, it is important for the taxpayer to maintain the proper documentation. That documentation should specify the business purpose of the trip, the addresses where you started and stopped, the date, and the odometers readings. Again, an app on a smart phone would track that information automatically for you.

    Further, the option to download an app and keep track of mileage is a great option for many business owners. That is, business owners have a host of other items to focus on, including running their business. Thus, if an app can be used to properly maintain documentation, as well as to make a business owner’s life a little easier, then we would encourage a taxpayer to use an app. Many apps have free versions. But, there are also premium options available for a monthly or annual fee. At the end of the day, an investment into an app, to maintain the proper documentation, is well worth it. We would encourage taxpayers to look into various apps used to track business mileage expenses, including MileIQ, TripLog, Hurdlr, or Mileage Expense Log. These are just a few of the apps that are available to taxpayers to use on their smart phone.

Conclusion

    In sum, it is important for a taxpayer to maintain proper documentation when deducting business travel expenses, including mileage expenses. That is, it is important for sole proprietors to understand what business travel expenses are deductible and to maintain proper documentation regarding the expenses, to avoid further scrutiny by Revenue Agents during IRS examinations. If you have been contacted by the IRS or the Ohio Department of Taxation, contact the Nardone Limited tax attorneys at 614-223-0123.

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July 06, 2018

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