One of the most beneficial deductions for taxpayers is business mileage. This article addresses how to utilize technology to comply with some of the record keeping requirements needed to substantiate a business mileage deduction.
In order to deduct mileage, either via the standard deduction rate or using actual expenses, the following written support is needed:
- Total miles, business and personal, for the year
- For each business trip:
- Mileage for the trip
- Business destination
- Business purpose
To substantiate total mileage, taxpayers will need proof of odometer readings at the beginning and end of the year. This requirement goes beyond the scope of this article, but is a critical audit issue.
Traditionally, clients have kept a written daily business mileage and expense logs to substantiate their trip mileage. Estimates or sampling attempts by taxpayers have been disallowed by the IRS. Actual logs are needed! These logs are cumbersome and time consuming.
Currently, there are a few technology solutions which can assist in tracking your auto mileage.
The following three tools are smartphone application only solutions, no device required.
- MileIQ (www.mileiq.com) uses GPS technology to track and generate trip logs. Indicating whether a trip business or personal is as simple as swiping right for business or left for personal. For business trips, additional information will need to be added to meet the substantiation requirements, but this can all be done in the app. While MileIQ has the most user friendly interface, it does not work well with fleets or multiple vehicles.
- MileBug (www.milebug.com) uses GPS technology similar to MileIQ. Taxpayers are able to utilize the application to identify business trips and enter required information for each particular trip. MileBug really shines when dealing with multiple entities or drivers. It even has the capability to allow fleet drivers to upload their mileage logs to a central location. While the interface is not quite as simple as MileIQ, it has the capability to handle situations for larger businesses.
- TaxBot (www.taxbot.com) goes a little bit beyond some of the other mileage tracking applications. It has a user friendly interface with manual and automatic methods to record mileage. Taxbot prompts you for information for each trip to help support your tax deductions. In addition to mileage tracking, TaxBot allows you to track business expenses. The application allows you to take pictures of receipts and classify expenses. It also has the ability to import transactions from most bank accounts and credit cards for easy categorization.
Taking a slightly different approach from the prior three application only solutions, Automatic (www.automatic.com) is a small device which is inserted in your vehicle’s On-Board Diagnostic (OBD) port under the steering wheel. This is the same port that is commonly used by mechanics to connect a diagnostic computer. The adapter is inexpensive (under $100) and it links to a free application on your smart phone. The device tracks your vehicle’s trips, mileage and other data. This allows the taxpayer to separately identify the business mileage but currently lacks all the functionality to fully document mileage under current IRS regulations. The information is accessed through a smartphone application. Another limitation of Automatic is that a separate adapter is needed for each business vehicle.
While the technology solutions above can help taxpayers move away from the pen and paper auto logs of old, it still requires diligence on behalf of the taxpayer. We suggest you consult with your Kerkering Barberio tax advisor to ensure you are in compliance with all required documentation standards.