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How Schedule C Taxpayers Can Avoid Mileage Audits by the IRS

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“Once the IRS starts looking into your accounts, it never stops until it finds a mistake”. This is a common analogy among the Schedule C taxpayers who are particularly on the spotlight by the internal service revenue officers.

To avoid getting audited, you should always log your mileage using a mileage application tracker and then store the documents properly in the digital format. These documents can become your evidence in case the IRS comes calling.

The IRS is specifically keen on checking the mileage costs that have been written off against tax by business owners under schedule c.

Track Work Mileage With GOFAR

  • Log, calculate and export business expenses at the press of a button
  • No ongoing fees
  • Available on iOS and Android

How Does it Work?

Why are Schedule C Taxpayers Targeted for IRS Mileage Audits?

Despite its limited resources That can be used to verify the veracity of the information filed by the taxpayers in the tax return forms, the IRS conducts routine audits on schedule c taxpayers. Below are some of the reasons why this category of taxpayers is of interest to the IRS.

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Schedule C Taxpayers Lack Expertise

It is doubtful that are self-employed taxpayer would have the resources to hire a tax expert to help him file the returns. Since these business owners are generally in charge of running the affairs of the business, they lack the adequate time and the expertise to file the contemporaneous documents that are used to substantiate the mileage claims.

Examples of business owners under schedule c include plumbers, landscapers, truckers etc. The taxpayers under this category are usually engaged in businesses such as plumbing, installations, driving, masonry, roofing, building, and many more. They work long and hard hours and are left with little or no time for bookkeeping.

The IRS will, therefore, want to verify the balance sheet and bank statements of this category of taxpayers before accepting the mileage claims made on the tax returns.

Schedule C Taxpayers are Sometimes Tempted to Overstate Expenses

Despite knowing that was overstating the expenses incurred when driving for business purposes is illegal; the taxpayers under schedule c are hard-pressed for cash flow and are sometimes tempted to exaggerate the expenses. The IRS is fully aware of the temptation to pad the costs of running a vehicle and will, therefore, pay particular attention to the returns filed by these taxpayers.

It is also important to remember that wage earners get their paycheck after a fortnight and a copy of the paycheck is sent to the IRS through the social security administration. This means that the tax authorities already know how much you have earned even before you file your tax returns.

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What Expenses Does the IRS Target in Mileage Audits?

The IRS is fully aware of the problem of padding expenses, especially when claiming for mileage. There are certain classes of expenses that are a direct target of the IRS when conducting its audit. This includes auto expenses, mileage expenses, meals and entertainment.

The IRS requires that you provide enough substantiation for the mileage that you are claiming because these expenses are the most likely to be exaggerated and they are also the most difficult to reconstruct.

To create proper records, you need to use a mileage tracking app such as GOFAR. The app helps you to log your mileage As well as to find your engines sweet spot to teach you how you can drive better to save on your fuel cost and wear and tear repairs. Other areas where GOFAR can be helpful include

  • Understanding the engine fault and then translating the technical jargon into plain English
  • Helping you to drive better save up to 30% on fuel costs
  • Automating business expenses and log book
  • Giving you free and easy-to-install mileage logging app
  • Connecting you with the best parts suppliers and mechanics in your area

What Can You Do To Avoid IRS Mileage Audits

Automate Your Appointment Records

There are so many tools on the internet to help you out or meet your schedule. You can, for example, use the Google Calendar to create a digital format of your appointments. The digital format will help you support your claims of the business errands to run throughout the year.

While you will not be required to send the appointment records when filing your returns with the IRS, the tax authorities will required that you provide supporting documents for your mileage claims. In case there is an audit query about your mileage, you can always produce your electronic appointment calendar to help you prove your case.

Keep Chronological Contemporaneous Records

From the first day that you make your first business trip, the IRS will require you to keep a good record of the mileage covered. The best way to go about this is to have a mileage application app that can automate your mileage logging task. This will ensure that you have accurate records and that there is no missed mileage that you should have claimed. The log will become your contemporaneous record to support your mileage claims.

Ensure you Can Reconstruct the Records Easily

If by bad luck you forget to switch on your mileage app, you will need your automated appointment records to reconstruct the miles that you travelled for business purposes but were not captured on the mileage tracking app.

Track Work Mileage With GOFAR

  • Log, calculate and export business expenses at the press of a button
  • No ongoing fees
  • Available on iOS and Android

How Does it Work?

Claim the Qualified Mileage Expenses ONLY

Not all the mothers that you drive will be business-related and therefore an allowable deduction. For example, you should not log your commute to and from work and then claim it when filing your returns.

While you can claim the mileage from your office to a client’s office, you are not allowed to claim the mileage from the client’s office to your home. This is regardless of whether you went to the client’s office for business-related activities or personal reasons.

If you happen to drop in on a client on your way to a personal vacation, this will not qualify as a business mile. The test as to whether the miles driven qualify as business miles is to see if the business was the principal purpose of your trip.

Separate Commuting from Business Miles

The IRS considers commuting miles as personal expenses and therefore cannot be claimed for deduction against the tax. You need to learn how to separate your commuting miles from your business miles. As a general rule, the first and the last drive from and to your home is considered commuting. Any other trip that is business related during the day should be logged on the mileage tracking app.

Choose Rate is Applicable for Your Mileage

You can get the information on which mileage rates to apply for your business travelling expenses from the internal revenue service website (www.irs.gov). Remember that the rate applicable changes on a yearly basis as the prevailing economic conditions change.

If you want to calculate your total mileage deduction for past years, you should check on the IRS website to use the correct rate.

Keep the Documentation Safe

Good practice, you should keep all your mileage documentation for at least three years from the day you file your returns. The IRS may request additional documentation to substantiate your mileage deduction, and in such cases, you can always retrieve the documents that you kept safely to serve as your proof.

If You Can Afford, Hire a Professional

Sometimes the cost of filing your returns without the expert knowledge is more expensive than hiring a tax consultant to file your returns for you. It is unlikely that returns filed by a professional will get the attention of the IRS. If you feel that there is anything complicated about your taxes, it is always advisable to hire a professional tax consultant.

Track Work Mileage With GOFAR

  • Log, calculate and export business expenses at the press of a button
  • No ongoing fees
  • Available on iOS and Android

How Does it Work?

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