Mileage logs have formal requirements, therefore to claim a tax deduction for the business use of your car, it is important that it contains specified information.
We collected the most frequently asked questions and answers (based on the guidelines of the IRS) to help you start keeping or recreating your mileage logs.
When do you need to keep a mileage log?
- In the case of tax refunds for personal cars, the business/personal use ratio must be supported by a mileage log, and the tax can be refunded proportionally after the business part. Up to 90 – 100% can be reclaimed with mileage logs. However, we recommend a maximum of 80% – 20% business-personal use ratio, as anything above 80% is a red flag for IRS auditors.
- Business owners (independent contractors, freelancers, consultants, sole proprietors, partners in a partnership, and members of limited liability companies that are taxed as disregarded entities) are required to keep a mileage log if deducting the expenses of their vehicle used for economic activities.
- For businesses operating company cars, they are required to keep a mileage log, this, however, depends on the state your business is operating in. Nonetheless, practice shows that it is recommended to keep a mileage log to prove expenses, as the IRS often asks for it.
Let’s take a look at some frequently asked questions about mileage logs and the related documentation!
- Do I need to collect refueling receipts when driving a company car?
Yes, you have to keep the bills every time you fill your car! Even when you go on vacation by car, don’t lose the bills, as they are one of the bases when creating your mileage log. We call them “fixed points“, as the safest way to create an IRS-proof mileage log is to build the travel itinerary around these unchangeable components. The reason for this is that the IRS can ask for supporting documentary evidence (e.g. filling bills) in the case of an Audit and the dates of fillings in your mileage log have to match with the ones indicated on the bills.
- How often do I need to record my odometer readings?
In all cases, the mileage log should be kept in monthly blocks, however legally you’re required to record your annual odometer reading at the beginning of the year. In practice, it is worth recording them monthly to justify the tracked mileage you put in your mileage log.
- What kind of record should be kept of personal trips?
Many fall into the mistake of not recording personal trips. Yet you have to keep just as detailed records of them as you would do it in case of business trips.
What are the consequences of incorrectly kept mileage logs?
If you aren’t able to satisfactorily prove your mileage claims the IRS penalty for claiming business miles without a mileage log is $1000 or 50% of your income!
Tip: instead of 100% business use, I recommend everyone to have an 80-20% business – personal use ratio (unless you can prove 100% business use)!
For tax deduction claims – you’re required to keep a monthly mileage log.
Keep the receipts, record your odometer monthly – the IRS can ask for supporting documentary evidence.
Penalties are high – but deductions are high as well. So take care of your mileage logs.
According to the IRS, your mileage log must include a record of:
- the total mileage you drove in the tax year for business, commuting, and personal driving other than commuting
- first and last odometer reading of the year (recording them monthly is recommended)
- the dates of your business trips
- your starting point and your destination of each trip
- the name of your business partner you’ve visited
- the address of the business partner you’ve visited
- the mileage you’ve driven between your business partners, one by one
- the daily total mileage you drove
- the monthly total mileage you drove
- the purpose of your trips: business, personal, commute, medical, moving, charity, etc
- the standard mileage rate effective in that year (if your mileage log is calculated based on that number)
- all data related to refuelings
- the ratio of your business and personal trips
If in the course of activities subject to legal confidentiality (eg medical activities), you have to record the data of an individual in order to oblige to the IRS’ requirements, but you must keep a separate mileage log about confidential clients and information.
According to the IRS:
You don’t need to put confidential information relating to an element of a deductible expense (such as the place, business purpose, or business relationship) in your account book, diary, or other records. However, you do have to record the information elsewhere at or near the time of the expense and have it available to fully prove that element of the expense.
Useful links for mileage logging
- Calculate your past odometer readings
- Estimate your actual fuel consumption
- Publication 463, Travel, Gift, and Car Expenses
- Topic No. 305 Recordkeeping
- Publication 583, Starting a Business and Keeping Records
- Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ)