The IRS has hired many new auditors and the audit rates for small businesses are increasing dramatically. Our local IRS office used to have only two auditors for the whole El Paso area. They now have over 20 auditors.
If you’re audited, auto usage will be scrutinized. IRS regulations require you to keep a log of your auto usage. If you don’t, most agents are simply going to throw out your deduction. Many times we win back most of the mileage on appeal, but the cost in accounting and legal fees adds up quickly.
The best thing to do is to track your mileage in advance. One question I get is if it’s worth the time. If you drive 500 miles per week for business, that will total 26,000 miles for the year. At the current mileage rate of 56 cents per mile, your deduction will be worth $14,560. If I assume a 25 percent tax bracket and a sole proprietor who pays 15.3 percent self-employment tax, this results in a tax savings of $5,868 that you would be losing each year without mileage logs.
Watch the video below to see how to set this up in QuickBooks. You will be able to run reports that show you the mileage by vehicle (summary and detail) and mileage by job or customer. You will not only satisfy your IRS requirements; you will have a tool to manage your vehicle use and capture your vehicle cost by job.