Often in an IRS audit, the tax examiner will ask for your mileage log at the beginning of the audit. If you do not have a mileage log, what should you do? Think about it. If you don’t have a log for mileage, what is the IRS going to think about your other records? Right—they are going to think you are a taxpayer with bad tax records who needs extra scrutiny.
The IRS says that you may keep an adequate record for part of a tax year and use that part-year record to substantiate your vehicle’s business use for the entire year. To use a sample record, you need to prove that your sample is representative of your use for the year.
By using your appointment book as the basis for your mileage, you not only build great business-use proof, but you also do a great job of showing that your sample vehicle record mirrors your typical appointments during the year. (If you are using a mileage app, synchronize the app results with the appointment book.)
The IRS illustrates two possible sampling methods:
- One identical week each month (for example, the third week of each month)
- Three consecutive months
We dislike the one-same-week-each-month method because it is difficult to start and stop a record-keeping process. (Think about how hard it would be to create a habit, undo it, and then create it again—every month.)
The three-consecutive-months log requires only one start and one stop, and you are rewarded with nine months of mileage-log freedom. For this reason, the three-month log is the superior alternative.
Before getting into the three-month method, we should note that once you have done three months, you are in the habit. You might find it easier to continue all year, rather than stop this year and then have to start again next year.
Here are the basics of how the IRS describes the three-month test:
- The taxpayer uses her vehicle for business use.
- She and other members of her family use the vehicle for personal use.
- The taxpayer keeps a mileage log for the first three months of the taxable year, and that log shows that 75 percent of the vehicle’s use is for her business.
- Invoices and paid bills show that her vehicle use is about the same throughout the year.
According to this IRS regulation, this three-month sample is adequate to prove 75 percent business use.