Last week Phil was meeting with his CPA to file his annual tax return for his real estate business when his accountant asked him a simple question, “How many miles did you put on your car for business purposes this year?” Embarrassed, Phil’s gaze drifted upward toward the ceiling as if looking for the answer to be scratched into the ceiling tiles… “Um… about 15,000 I guess,” he replied.
Have you had a similar situation? Millions of people have experienced this and they gave it their best guess. We won’t judge you. Most of us have probably done it ourselves in the past. Business is busy and we are all out chasing the next deal or the next sale. But here is a shocking statistic. Vehicle and mileage deductions are #1 audited deduction for sole proprietors and small business! Why? Because it is one of the most profitable deductions available and most of us are doing it wrong. So its easy for tax auditors to find money.
Before I move on. Some of you are saying “I use the standard mileage rate I don’t deduct my individual expenses for gas, oil, repairs etc.” I hate to break it to you but you are still required to keep a mileage log for your business trips as if you itemized your vehicle deductions.
We have more on this subject and many more ways to save on your taxes… Download our FREE REPORT: “How to Get the Equivalent of FREE GAS For Your Business Vehicle.”
At the bottom of your tax return you sign the small print that says “Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct, and complete.” One of those schedules is your statement of vehicle usage.
The IRS has the right to audit your records. And if they do then you better have the right proof because when it comes to tax law its not like our justice system. This is true for Canada tax auditors as well. In tax law you are guilty until proven innocent. So if you don’t have the right proof then they can disallow your deductions, and you will have to pay back any money to the government. In addition, they can tack on severe penalties and interest.
So what does the IRS and other tax auditors from most countries want to see as proof? They want a log book of all your business trips. Ten years ago savvy self employed people kept a clipboard in their car and wrote down the date, beginning and ending odometer readings, and the business purpose of the trip. Today technology like Taxbot makes it much more simple to capture the data. But what does the IRS want to see?
- The date of each business trip
- The mileage of each trip
- The address for each business stop
- An explanation of the business purpose for the trip (i.e. Sales presentation to John Smith).
- What vehicle was used
If you don’t have all of this type of documentation and you claimed your vehicle deduction then you could lose the savings if you are audited. As a self employed person you still have as much as 500-700% greater chance of an audit than an individual with just a regular job.
Historically chances of an audit have been fairly low for any given year. However, the IRS is now doing more and more correspondence audits. These are audits where the IRS doesn’t even meet with you personally. They just send you a letter asking you to send in your documentation of proof for certain deductions. So contrary to popular belief, the IRS is increasing the number of audits they perform each year especially for big ticket items like automobiles.
We are not suggesting you don’t take full advantage of the vehicle deductions. In fact, we would call you a fool if you didn’t. Just make sure you play by the rules, and you will have nothing to worry about.
Taxbot was developed to help entrepreneurs and independent contractors save time and money on their taxes. One of the many things Taxbot can do for you is automatically track your mileage so you don’t have to remember to do it. The Taxbot app can sense when you are driving and it logs your trips for you. You can come back to the app later and separate out the business mileage from the personal. It allows you to track your mileage according the IRS rules so next year when you meet with your CPA you can simply hand him a digital copy of your mileage log that will stand up to the strictest IRS auditor. You can rest easy and let Taxbot do most of the hard work. Last year Taxbot tracked over 100,000,000 miles for our clients. They can rest easy knowing that Taxbot is doing most of the heavy lifting.
- Automatically track your business mileage. That’s right! Your phone will track all your trips so you don’t have to remember. Then you can come back to the app later and classify your trips as business or personal. Easy, right?
- Digitally store receipts. Taxbot lets you snap a picture of your receipts and then asks you for additional information needed to stay IRS compliant. For example, did you know a business meal requires you document who you met with, what you talked about and why it was business, where you met, how much you spent? Taxbot makes it easy and simple.
- Link your online banking and import transactions into Taxbot using our bank level security banking connections.
- Produce our AuditSafe™ Reports at the end of the year. We guarantee that they will be the best reports your tax preparer has ever seen.
- And finally, we are going to educate you through webinars, blog articles, and more about easy-to-implement tax strategies for your business.
Sound interesting to you? We have a special offer for you to try Taxbot for 2 weeks free with no obligation and no credit card required. Just click here to learn more and to sign up.