Will I get Audited for Mileage?

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Are you a business owner who writes off business expenses under Schedule C? If yes, then you should be aware that there are certain costs that you will write off that will be vulnerable to IRS audits.

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Schedule C Taxpayers are Targeted by IRS Audits

The IRS has a limited budget with which to verify that the information input by the taxpayers in their tax return forms is correct.

If you file your returns under Schedule C and Schedule II, you are a target for the regular audits conducted by the IRS.

They Lack Expertise

The reason why the IRS wants to verify that the information input is correct by this category of taxpayers is that they lack adequate expertise or time to substantiate the claims.

Examples of taxpayers under these sections include;

  • plumbers
  • truckers
  • landscapers, etc

They are busy building, installing, and driving. They work for long hours and hardly have time for daily or even weekly bookkeeping.

The IRS will, therefore, want to check the;

  • cashflow statements
  • balance sheets and
  • bank statements

to ensure that they are paying the tax as they’re supposed to.

They Overstate Expenses

Another reason why IRS would want to audit a taxpayer under Schedule C is that they overstate the expenses.

The IRS is fully aware of this fact because all the wage earners get a paycheck after a fortnight and a copy of the year’s W2 form is sent to the IRS through the social security administration.

So before the taxpayer files the returns to the IRS, the service already knows how much the individual has earned in the said tax year.

Which Expenses are Vulnerable to IRS Audits?

Some taxpayers are tempted to pad their costs. Certain expenses are a direct target for audit by the IRS including;

  • mileage expenses
  • auto expenses
  • meals and entertainment

The substantiation requirements for these expenses is because they are the most likely to be exaggerated and they are the most difficult to reconstruct.

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Photo courtesy from Flickr Images by 401(K) 2012

How to Avoid Getting IRS Audits

Keep an Appointment Book

You are well advised to have all your appointments in one place so that you can be able to support your claim of the business errands that you run.

Get a paper organiser or an electronic calendar that says all the appointments that you had during the year.

You will probably not send appointment record when filing returns with the Internal Revenue Service (IRS), but if the tax authorities require you to provide supporting documentation, you will have enough proof for your mileage claims.

Keep Contemporaneous Records

The IRS requires that you keep a good record of your mileage starting from the day you make your first business trip.

You are expected to check your mileage at the end of every day so that you ensure that your mileage up is up to the task.

This ensures that you have accurate records and that you don’t miss any mileage that you should have claimed and that you have enough supporting documents for you mileage claims.

Make it Easy to Reconstruct the Records

Sometimes you may forget to switch on the mileage app. In such situations, you will need to use your appointment book to reconstruct all the miles that you have travelled for business purposes.

Only Claim Qualified Mileage Expenses

Not every mile that you travel qualifies as business-related travel. You cannot, for example, log your commute to and from work as business-related travel.

However, you can count your commute from the workplace to meet a client as a business-related mileage.

When you drive home from either the office or from your last client during the day, you cannot count that as a qualified business mile.

Sometimes you may drop in on a client on your way to a personal vacation. This will not qualify as a businessman. The real test for a business mile is to see if you travelled with business as the principal purpose of the trip.

Learn How to Separate Commuting and Business Miles

The IRS considers commuting expenses as personal driving expenses. Differentiating between commuting and business driving is tough.

You can take as a general rule that the first and last drive between your home and regular place of work is considered commuting.

Know Which Rate is Applicable for Your Type of Mileage

The best place to get information about the mileage rate to use is the Internal Revenue Service website (www.irs.gov).

The rate applicable to mileage changes on a yearly basis. If you are calculating mileage for last year, you’re well advised to double check on the official IRS website to ensure that you’re not using the wrong figures.

File the Documentation as Evidence

You must provide the documentation that proves mileage covered for business for at least three years from the day you file your tax returns.

The IRS may request for the documentation to substantiate mileage deduction. You are expected to have a copy of all the records that you have dispersed to the tax authorities.

Get organised by maintaining the documentation for each tax year separated.

Hire a Professional to do Your Taxes

If you don’t have the time or the skills to file your tax returns, it is advisable to hire a tax consultancy to file the returns for you. It is highly unlikely that returns done by a professional would attract the attention of the IRS.

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