Accurately tracking vehicle mileage is often overlooked in small business accounting and tax preparation. Often, either mileage is underreported due to lack of records or a fear of being audited, or it’s over-reported, also due to lack of records, or a “I know how much I drove” attitude.
Although it’s best if taxpayers have a small notebook in the car to record actual odometer readings each time a business trip is made, this is cumbersome, and most people don’t want to do it. Accurate records are a must, because mileage deductions must be able to stand up to scrutiny in the event of an IRS audit.
QuickBooks can help. Use the following steps to generate and record vehicle mileage.
1. If you do not have any mileage records already recorded in QuickBooks, proceed to step 2. If you do have a few mileage records recorded in QuickBooks, go through them and make certain each one has the trip destination recorded in the Notes field, such as “ABC Printing” (from the Company menu, select Record Vehicle Mileage, then page through the records to check them). Then, generate a Mileage by Vehicle Detail report (from the Reports menu, select Jobs, Time, & Mileage, then select Mileage by Vehicle Detail). In the Dates field, select This Tax Year to Date. Using the Modify button, eliminate all columns except Vehicle, Trip End Date, Total Miles, and Notes. Print this.
2. Generate a Profit and Loss Detail (from the Reports menu, select Company and Financial, then Profit & Loss Detail). Set the date range for This Fiscal Year to Date. Using the Modify button, eliminate all columns except Type, Date, Name, Memo, and Amount. Print this.
3. If your company is the type where you drive to see customers, generate a Transaction List by Customer report. From the Reports menu, select Customers & Receivables, then select Transaction List by Customer. Using the Modify button, select the Filters tab. In the box labeled Filter, select Transaction Type. Change the Transaction Type from All to Invoice. Click Ok, then print the report.
4. 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. If there are destinations missing in the Mileage by Vehicle report, enter them (from the Company menu, select Enter Vehicle Mileage). Don’t forget to include the trip destination in the Notes field. Consider using one of the online map sites (such as Yahoo! Maps or Mapquest) to generate printed information about the distance between your office and the destination. Save the reports and the printed map information for your tax file.
I am not asserting that this method will definitely stand up to IRS scrutiny. 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.” As long as you can produce the receipt or invoice showing the trip, and the map information showing the distance, this method fulfills these requirements.
Nobody wants any of their deductions disallowed for lack of evidence. If you don’t want to use a mileage notebook in the car, this method will help ensure that whatever mileage you do claim is well documented.