One item that I seem to be defending most often in audits is mileage. Auto ownership can be a huge cost for taxpayers, and unfortunately many of them get into trouble by improperly claiming a mileage deduction on their tax return. I am going to walk you through the basics of what is deductible and how to protect that valuable deduction.
In order for you to have eligible mileage for this deduction you must have more than one job or work location. Driving from your home to your main job then back to home is known as commuting. Commuting mileage is never deductible. If you then travel to a second job or a temporary job location you can log those miles as deductible miles. Any business miles you travel will be eligible, make sure you are not counting personal trips.
Example 1: John is an employee who works as a mechanic. He drives 15 miles Monday through Friday from his home to the shop (main job). After work, he moonlights at another shop which is 25 miles away. John will be able to deduct the 25 miles to the second shop, not the 15 miles nor the return trip home.
Example 2: Using John’s situation above except he leaves to the second shop in the middle of the day for a few hours then returns to the main shop. John would be able to deduct 50 miles each day. His commute of 15 miles between home and the first shop remains non-deductible.
Example 3: John works at the second shop on Saturday. Since this is the only place of work that day his travel is considered commute and is not deductible.
A temporary work location is a place you have been assign to work that will realistically last a year or less. In the case of a temporary work assignment you may deduct the mileage travel from your home to that locations. By definition the temporary work assignment assumes you have a regular work location. Simply having a short term job does not qualify you for this provision. If at some point the expectations of the temporary work location change and you expect the work to last longer than a year the location is no longer considered temporary. You will be able to use the temporary work location provision up to the date your expectations changed.
Example 4: John’s boss opens another store 50 miles away and asks John to help open it. John will assist at the new location for 6 months then return to the main job. Since this time frame is less than a year and John has a main job location, John will be able to deduct the 100 miles from his home to the new shop (temporary work location) and back to home. This will be allowable for the duration of the 6 months.
Example 5: Four months into working at the new shop, John’s boss promotes him to manager of the new shop and this will be his new main job site. He will be able to claim the temporary work location for the 4 months until his expectations changed. After the 4 months his travel is considered commuting and it is no longer deductible.
In order to claim the deduction on your tax return you must keep adequate documentation. To be considered adequate, you must keep a contemporaneous log. Meaning, log your mileage as you go. The Internal Revenue Code also requires that the log contain the amount, time, place, business purpose, and business relationship to the taxpayer. This may seem unrealistic to you but remember this is typically a very valuable deduction. To have this expense disappear during audit because of inadequate documentation can be very costly. Courts have thrown out reconstructed mileage logs time and time again, but I have been successful at audit with reconstructed logs and other documentation.
Some tips for record keeping:
1. Keep a log book showing mileage, time, date and purpose. Write down the odometer reading occasionally.
2. Keep maintenance receipts that show odometer readings. Third party proof of your records.
3. If you forget to track your mileage throughout the year, be diligent for a period of time. I like October 1 through December 31. Then multiply the mileage by 4, along with 3rd party records this will give you a solid estimate. This way of tracking is not perfect but it’s better than nothing.
I hope this helped.
David Hilliard can be reached for questions at (714)-921-2790 or at firstname.lastname@example.org.