Friday, January 23, 2009

BRIDE OF KEEPING TRACK OF BUSINESS MILEAGE

Yesterday I discussed one alternative for keeping track of business mileage. Today I would like to take a look at another IRS-approved method. That method is called “sampling”.

Instead of keeping a log of all business miles for the entire year you can use “sampling” to determine your total business miles.
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According to IRS Publication 463 (Travel, Entertainment, Gift, and Car Expenses) – “You can keep an adequate record for parts of a tax year and use that record to prove the amount of business or investment use for the entire year. You must demonstrate by other evidence that the periods for which an adequate record is kept are representative of the use throughout the tax year.”
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The sticky part here is “You must demonstrate by other evidence that the periods for which an adequate record is kept are representative of the use throughout the tax year.” How to do this is not clear.

The Publication gives the following example of “sampling” –

You use your car to visit the offices of clients, meet with suppliers and other subcontractors, and pick up and deliver items to clients. There is no other business use of the car, but you and your family use the car for personal purposes. You keep adequate records during the first week of each month that show that 75% of the use of the car is for business. Invoices and bills show that your business use continues at the same rate during the later weeks of each month. Your weekly records are representative of the use of the car each month and are sufficient evidence to support the percentage of business use for the year.”

I am not quite sure how “invoices and bills show that your business continues at the same rate during the later weeks of each month”. My only comment is that if gas usage does not materially change during the “later weeks of each month” one can assume the same amount of overall driving could mean the same amount of business miles.

An item in an issue of the newsletter TAX HOTLINE (now called BOTTOM LINE WEALTH) from last summer gave the following example for “sampling” – “If you record that business mileage in the first three months of the year is 2,500 miles, you can base your annual deduction on 10,000 miles (2,500 x 4), even though you have specific mileage records for only 2,500 miles.” .

This specific example would not really work for me. The first three months of the year contain two full months of the tax filing season. I do a lot more business driving during the tax season than I do for the balance of the year – so in my case the first three months of the year are not “representative of the use throughout the tax year”.

While “sampling” is an acceptable method for the lazy, for a person whose business mileage is relatively consistent throughout the year, or for someone who has lost his records for a large part of the year – I still recommend keeping a mileage log for the entire year (see yesterday’s post). This way you will know your actual total business miles for the year and will not short change yourself.

Does anyone out there have any suggestions for how to “demonstrate by other evidence that the periods for which an adequate record is kept are representative of the use throughout the tax year”?

TTFN

1 comment:

mileageblogger said...

You can use also an automatic mileage logger provided by www.MileageLogger.com . All the records are logged automatically and sent to a secure online account. That's probably the easiest method to track your mileage without pen or paper or pushing any buttons.