Creating a Compliant Mileage Log for IRS Purposes

On the surface, mileage reimbursement seems pretty straightforward. Mobile employees use their personal vehicles for work trips. They track that travel in a mileage log for IRS compliance. The business then reimburses the employee, and takes their tax deduction. 

That process gets a lot less straightforward when those mileage logs don’t actually hold up under scrutiny. Error-ridden or incomplete logs violate IRS rules that keep reimbursements accountable, or non-taxable, creating tax penalties for noncompliant business. Poor mileage records will also cause a lot of trouble in the event of an IRS audit. 

But why make things harder than they need to be? In this article, CompanyMileage will break down exactly what’s expected of a compliant mileage log for IRS requirements, and the best ways for your business to make sure those requirements get met. 

What the IRS Requires From Mileage Logs 

The IRS states that mileage can be reimbursed when employees travel to get from one place to another as part of their business or profession, to visit clients or customers, to attend meetings for business purposes, or from their home to a temporary workplace when they have one or more regular workspaces. Anything else, including commuting, side trips, and errands, is not considered eligible travel for reimbursement. 

An IRS-compliant mileage log must be able to prove that each trip was business-related. Logs must include the number of miles driven, the date and time of each trip, the starting and ending locations, and business purpose for each trip. You don’t need to write the great American mileage novel or anything, but logs should be specific enough to demonstrate that the trip had a legitimate business need. Vague entries like “client visit” or “errands” might not make the cut. 

A compliant mileage log for IRS purposes must also be as timely and as accurate as possible. Mobile workers (or their employers) should log mileage shortly after the completion of each trip, instead of weeks or months after the fact. Sooner is always better, but weekly updates should suffice.

What About the Format? 

While the IRS has strict rules about what log entries must contain, they do not mandate what form a mileage log for IRS compliance must take. Paper logs, mileage spreadsheets, app-generated records…these methods are all allowed, even if some might be more advisable than others. 

What About Odometer Readings?

Many people assume an odometer reading is required at the start and end of each trip in a compliant mileage log for IRS purposes. Traditionally, recording and subtracting odometer readings has been the tried-and-tried way to manually calculate mileage totals. However, the truth is that the IRS has no such requirement. Instead, they need your employees and yourself to provide an accurate record of the miles they’ve driven for each trip. 

Because the IRS will only reimburse business expenses, your employees will have to keep an accurate accounting of the miles they drive for personal reasons and those they drive for work. There are numerous options for tracking the mileage that will be an acceptable mileage log for IRS uses…but more on that later. 

How Long Should Logs be Kept?

The IRS requires that business records be retained for at least three years from the date the related return was filed. The responsibility for maintaining these records lies with the organization, not just with the employee. 

Where Most Mileage Logs Break Down 

The list of requirements for a compliant mileage log for IRS purposes isn’t that long, but when businesses fail to meet those requirements, they do so in pretty predictable ways. Some of the most common mileage logging problems include:

Missing or Vague Trip Details

As we noted above, mileage logs must include the time, date, purpose, and locations for each work-related trip. If these details are not provided (including any necessary documentation or receipts) or cannot be substantiated, that employee’s reimbursements may be reclassified as taxable income, losing your business that deduction. 

Often, incomplete or overly vague records can be tracked back to a lack of timeliness. Employees who fill in mileage logs using remembered details well after the date of the actual trip(s) when the travel occurred are more likely to misremember important details – or forget them entirely. Logs should be accurate and contemporaneous or near term for reliability, which helps substantiate claims and avoid audit risks.

Inaccurate Mileage Totals

Mileage tracking can get time-consuming. Trying to keep track of and calculate mileage totals, especially using manual methods, like odometer readings, can get complicated. As a result, some businesses may be reimbursing employees for miscalculated mileage, estimated mileage, or mileage that has been rounded up to a more ‘even number.’ These behaviors, especially when they go unnoticed, can seriously undermine a business’s credibility. 

Mixing Eligible With Ineligible Travel

Mixing business and personal miles or including commuting miles is one of the most common mistakes an employee can make in a mileage log for IRS purposes. Even when done by accident, logging personal trips or side trips as reimbursable mileage is a common form of mileage fraud and could incur penalties or regulatory scrutiny. 

Why the Method Employees Use Matters as Much as the Data

We know that the IRS doesn’t police the way mileage is tracked and logged, so long as the right information gets included. This begs the question, though: With the wide world of formats available to you, what’s actually the best way for your employees to keep a mileage log for IRS compliance? 

How a business chooses to track and log mileage shapes the quality of the logs themselves. A poorly-chosen method creates compliance risk. Let’s be honest: not all mileage logging methods are equal in terms of accuracy, efficiency, reliability, or audit defense. Take manual logging, for example. Methods like paper logs or manual-entry mileage spreadsheets are, according to the IRS, completely allowable. That doesn’t make them the best choice, though. 

Manually filling out reports and log mileage is a slow, time-consuming process that eats up employees’ valuable time. It also comes with a higher risk of error, as both manual mileage calculations and data entry are activities where human error very much can – and does – enter the equation. Manual workflows make it that much harder and slower for managers and supervisors to find and correct those errors, as well as fraudulent behaviors like inflated mileage or duplicated reporting. 

How Automated Mileage Software Removes the Risk 

Maybe it’s time to introduce automation into the conversation about how to best maintain a mileage log for IRS compliance! Automating the mileage tracking process can reduce the stress and annoyance everyone faces when it comes time to track mileage for tax purposes. Any number of digital tools exist to make tracking mileage efficient and easy, including mileage tracking apps and digital mileage logs. Instead of depending on outdated analog options, using the right technology can help you meet IRS mileage log requirements and save you time and resources!

Digital or app-based logs can be a huge help, especially for busy mobile workers. Automation reduces errors, improves timeliness, and simplifies record-keeping (especially for multiple trips). Because entries are contemporaneous with travel, they serve as a much stronger audit defense than handwritten logs generated later. Another benefit of digital or app-based mileage logs is their use of GPS or map data, which calculates mileage with precision in compliance with IRS mileage log requirements. 

Make a Compliant Mileage Log for IRS Purposes with CompanyMileage

Even if you follow IRS mileage log requirements perfectly, it’s still a daunting task to oversee mileage logs for every single one of your mobile employees. Depending on how your business manages reimbursement, it can be almost impossible to catch every error or instance of inflated mileage numbers. That’s exactly why CompanyMileage created SureMileage, our automated mileage reimbursement software.

Unlike traditional mileage reimbursement solutions, SureMilage uses a point-to-point method to log mileage, in which workers input the start and end points for each trip. The system then takes those points and uses them to calculate the best route between them, and the reimbursement amount using that route. By utilizing automating tracking in this way SureMileage prevents inconsistencies, inaccurate mileage amounts, and personal errands from making their way into expense reports. 

With features like an offline mode, an integrated address book, and a Quick Capture widget, our mobile app, SureMobile, makes mileage tracking even easier for your hardworking employees. At the end of the day employees just have to take 5 minutes to organize their trips and submit any relevant receipts. Then they can edit and send expense reports right from their smartphones, no matter where they may be. 

Once submitted, those reports move through an automated approval workflow that can be easily customized to match the unique structure of your business. Our software also easily integrates with all major accounting and approval software, ensuring a smooth, streamlined process from start to finish. 

So what are you waiting for? Find out how to optimize and simplify the mileage reimbursement logging process by contacting CompanyMileage and requesting a demo today!