Beating out the King James’ Bible, War & Peace, and the Harry Potter series in pages and word count, the U.S. tax code is anything but brief. And while very few of us will ever have the displeasure of slogging through every line, it makes tax time stressful. It can become even more confusing when you’re a mobile employee or a business owner with mobile employees and have to keep a mileage log for taxes.
While the list of IRS requirements for mileage logs is short, meeting each requirement accurately is crucial. If the IRS finds the information to be inaccurate or if there are mistakes, those mileage reimbursement costs won’t be tax-deductible. Here are six of the most common mistakes and how to avoid them.
Mistake #1: Having Untimely Mileage Logging
Mileage logs are meant to be an accurate story of your employees’ driving activities for work. When those stories are written retroactively, they often leave out important details or are full of information that isn’t wholly accurate—because of this, having post-dated entries in your mileage log is a big no-no. With decades of experience, the IRS knows the signs of someone fabricating a mileage log for taxes, such as receipts for other expenses not aligning with the log or identical trips having wildly varying mileage.
Another danger of post-dating entries in a mileage log is attempting to estimate the miles driven. While you may feel your guess is close enough, the IRS looks at the number of miles you write down to see if they are too high or unusual. If they are, the IRS may decide to look at the entire mileage log a bit more critically.
Mistake #2: Making Mathematical Mishaps
When it comes to keeping a mileage log for taxes, it inevitably all comes down to numbers. If the mileage log is maintained manually, this means that you or your employees will end up doing a lot of math throughout the year. Having to add daily or weekly totals offers ample opportunity for errors such as forgetting to include a trip’s mileage, mixing up numbers, or any of the many pitfalls of mental math. While the IRS will likely be forgiving of a few minor errors, a log riddled with inaccuracies will raise suspicions.
Mistake #3: Having Unexplained Mileage Gaps
With 52 weekends in a year and 11 federal holidays, it’s expected that there will be gaps in your mileage log. However, these gaps aren’t the types of gaps that the IRS raises an eyebrow over. Instead, the IRS looks for gaps in your mileage log that are inconsistent with the other entries in the log. When the IRS sees these inconsistencies, such as inconsistent driving patterns or large gaps between entries, they may see it as a sign of spotty recordkeeping and take a closer look.
Mistake #4: Counting Non-Deductible Mileage
Not every mile added to a vehicle’s odometer will be considered tax-deductible. These include daily commutes to and from the office as well as personal errands, such as dropping the kids off at school or going to a doctor’s appointment. Including such trips in a mileage log can result in the IRS rejecting the log and leaving your business unable to deduct your reimbursement costs.
Suppose you or an employee are using a personal vehicle for work purposes. In that case, the variable of personal miles versus business miles can make keeping an accurate mileage log for taxes difficult. The IRS will never believe that 100% of someone’s travel for the day is work-related and will be looking for mileage that appears personal.
Mistake #5: Keeping Records Poorly
Outside of making mistakes when manually logging their mileage, poor recordkeeping is one of the most significant issues that people run into when keeping a mileage log. What makes for poor recordkeeping?
- Ineligible Entries: If the agents at the IRS are unable to read the entries on the mileage log, they will not be able to confirm their accuracy, which can result in them not accepting your log.
- Missing Details: While the IRS doesn’t require many details, your mileage log must include all relevant information such as destination, business purpose, miles and the date/time.
- Missing Documentation: The IRS requires you to submit documentation like receipts that support the details of the mileage log.
If your business isn’t using an electronic mileage log, it is essential to ensure that all of the required records are kept neatly and accurately.
Mistake #6: Reimbursing Higher than the IRS Rate
Every year in December, the IRS issues the standard mileage rate that they will use to calculate the deductible costs associated with operating a vehicle for business purposes. For 2022, this rate was 58.5 cents per mile driven. If you aren’t up to date with the current rate or you choose to reimburse your employees at a higher rate, the IRS will consider the excess reimbursed funds wages, and they will be taxable.
Automate Your Mileage Log for Taxes
Don’t let mistakes or ignorance get in the way of keeping an accurate mileage log. With CompanyMileage, you can create a more organized, accurate and cost-efficient system for logging mileage with CompanyMileage. Our mileage reimbursement software, SureMileage, can reduce the risks faced when reimbursing employees. With automated mileage tracking to prevent inconsistencies and point-to-point reimbursement, the risk of paying for travel that isn’t allowed by the IRS, such as personal travel or side trips, is all but eliminated.
SureMileage’s easy-to-use approval tools and seamless integration with nearly seventy different payroll and accounting programs aim to minimize the time involved with your reimbursement process, allowing you and your employees to focus on what’s important. Features that employees and administrators alike will love include integrated Address Books, one-touch check-ins at each service location, automatic flagging of specific behaviors, and a user-friendly interface. These features and more help reduce the time it takes for your employees to track their mileage and expenses while helping eliminate errors.
Don’t let mistakes get in the way of success; when CompanyMileage manages your mileage log, you’ll be amazed by how much time and money you save. Request a demo today to learn more!