What is the ultimate sin in an IRS audit?
Suppose you just received that lovely letter from the IRS telling you that you are the subject of an IRS audit.
What one record receives special attention? What one record can create a nightmare for you? What one record makes the IRS suspect that you are the keeper of lousy records?
Think of the record people most hate keeping. That’s the one we are talking about. You have probably guessed what that record might be. You might even know because you had a recent audit and didn't have this record..... think about it!
Red-Flag Record for the IRS Examiner
Once your audit examination begins, the examiner likes to see this record. If the record is missing or lacking, the IRS examiner knows that your other records probably are lacking, too.
This record—the one you probably hate keeping—is the mileage log on your vehicle or vehicles.
The IRS notes that a taxpayer’s failure to keep a mileage log on vehicles indicates that the activity under examination is not being conducted in a businesslike manner.
Do as the Tax Form Says
As a one-owner or husband-and-wife-owned business, regardless of whether it’s a corporation, a partnership, or a proprietorship, you file a tax form that asks you for the following information about your vehicles:
IRS Form 4562 has columns for answers to the above questions for up to six vehicles used by either a sole proprietor or an owner of more than 5 percent of a corporation, a partnership, or another entity.
The mileage log is the record of proof that you need to use for your answers to the tax form questions.
Do What the Audit Would Require
Above, we said to do as the IRS form says. For additional clarification, it is good to know what information the IRS, in a correspondence audit, requires you to provide related to that tax form:
Note that the IRS is looking for
If you want to avoid big trouble during an IRS audit, keep a good mileage log. This takes just minutes a day.
The mileage log is often one of the first records that an IRS examiner will look at. A good mileage log shows that you know the rules and you respect them. We have seen dozens and dozens of IRS audits end favorably and quickly upon presentation of a good mileage log.
On the other hand, a bad mileage log can turn your IRS examiner into an 800-pound gorilla.
Think of it this way: your mileage log gives you the choice to get in and out of the IRS audit quickly and with your wallet or to spend time with an 800-pound gorilla.
We are happy to help you create a mileage log. If you would like our help, please contact us.
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Spencer Accounting Group, LLC does not provide investment, tax, legal, or retirement advice or recommendations in these blogs. The information presented here is not specific to any individual's personal circumstances.
Keana Spencer is an Accountant, Entrepreneur, and Educator to her clients, with a strong passion. Keana has over 10 years of experience and through her practice, she is a source of knowledge and strategies to her clients.