Do you need help determining the vehicle mileage deduction on your tax return? QuickBooks can help!
Do you ever wonder if you are taking the correct car mileage deduction on your tax returns? I often wonder this for Schedule C filers. My theory is this:
- Some people probably don’t report enough car mileage on their tax returns. This leads to taking less of a deduction than the person might be entitled to take. It’s normally due to lack of records, or a fear of being audited.
- Other people probably report too much car mileage on their tax returns. This leads to more of a deduction than the person should take. This is also due to lack of records, or a “I know how much I drove” attitude!
Here’s the BEST Way to Record Vehicle Mileage for Tax Purposes
Have a small notebook in the car to record actual odometer readings for each business trip. It works like this:
Each time a business trip is made, the driver writes the date, the starting odometer reading, & the destination/purpose of trip. At the end of the trip, the driver enters the ending odometer reading.
At the end of the year, calculate the differences between the beginning & ending odometer readings for each trip. This is the total business mileage driven for the year and the amount that can be written off on the tax return.
Most importantly… the notebook stands up to scrutiny in a tax audit. I know this from personal experience!
However….. I’ve found that most people don’t want to take the time to record mileage this way.
Accurate mileage records are a must, because mileage deductions must be able to stand up to scrutiny in the event of an IRS audit. Schedule C filers are an IRS target in this area. No records = disallowed deduction.
Here’s How to Use QuickBooks to Find & Record Car Mileage
I’m sure you’ve heard the expression, “Follow the money.” Following the money means to examine financial records to see what happened – what money went where – to whom – when – and why. That’s exactly what we are going to do to help you determine your vehicle mileage for taxes!
If you do not have any vehicle mileage already recorded in QuickBooks, proceed to step two. If you are unsure, follow this path to see:
Company > Enter Vehicle Mileage
Scroll through the list to see if any records are there.
If you have a few mileage records in QuickBooks, go through them and make certain each one has the trip destination recorded in the Notes field, such as “ABC Printing.”
Then generate a Mileage by Vehicle Detail report by following this path:
Reports > Jobs, Time, & Mileage > Mileage by Vehicle Detail
In the Dates field at the top of the report, select This Tax Year to Date. Using the Modify button, eliminate all columns except Vehicle, Trip End Date, Total Miles, and Notes. Print this.
Generate a Balance Sheet Detail by following this path:
Reports > Company & Financial > Balance Sheet Detail
At the top of the report, change the date range to say This Fiscal Year to Date. Using the Modify button, eliminate all columns except Type, Date, Name, Memo, and Amount. Print this.
Run an Item report to make see if any of your individual service items represent places you drove.
Reports > Sales > Sales by Item Detail.
Make sure the date range is correct, and modify the report using the Modify button as needed. Print the report.
Now compare the reports. Look at every line item to see if it represents a place you actually drove, either to purchase something, have services rendered, or perform work for a customer. Watch out for duplicates between the reports. For example, the Item report might have entries found on the Accounts Receivable section of the Balance Sheet report.
If there are destinations missing in the Mileage by Vehicle report (Step One), enter them here:
Company > Enter Vehicle Mileage
Don’t forget to include the trip destination in the Notes field.
Use one of the online map sites such as Mapquest to generate printed information about the distance between your office and each destination.
Save the reports and the printed map information for your tax file.
If you are going into an IRS or state tax audit: I do not guarantee that this method will definitely stand up to scrutiny during the audit. However, this is certainly better than going into an audit with no mileage records.
Here’s a quote from IRS’s Publication 17 for 2004, from page 193 where it discusses Adequate Records:
“Documentary evidence ordinarily will be considered adequate if it shows the amount, date, place, and essential character of the expense.”
You need to produce these three things in order to fulfull these requirements:
- The vendor receipt or invoice for your purchase. You might even be able to use a bank or credit card statement if the vendor name & date clearly appears there.
- Your customer invoice, if you drove to your customer. An A/R report might work too.
- The map information showing the distance from your office to the destination.
Nobody wants their vehicle mileage deductions taken away for lack of evidence. If for some reason you can’t use a mileage notebook in the car, ‘follow the money’ using Quickbooks. It will help ensure that whatever mileage you do claim is well documented.
To your success and happiness!