An IRS mileage log audit is one of the most common types of audits that small businesses face. Here’s what you should do if you get audited over your vehicle expense deduction and what you can do to avoid a tax audit in the first place.
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This post is provided for general information only. Please confirm the details and circumstances of your unique situation with your tax accountant or other appropriate advisor before taking action.
What happens in an IRS mileage log audit?
In a mileage log audit, the IRS wants to see your mileage log to make sure you’re claiming legitimate business expenses. They don’t want people claiming too many miles or claiming miles that were actually personal expenses.
If you get audited, the IRS will usually ask to see your mileage log. They may also ask for additional supporting information. For example, if you’re an Uber driver, they might ask for your Uber account records so they can confirm you were working when you claimed mileage.
Does getting audited for mileage mean you did your taxes wrong?
Getting audited for your standard mileage deduction or actual vehicle expense deduction does not mean you did your taxes wrong. The IRS only knows what you entered on your tax return, and that’s not a lot.
If you claimed the standard mileage deduction, the IRS knows that you have a car and the total mileage you reported. If you used the actual expenses method, nearly all of your expenses go in a single box, and the IRS only sees your total expenses.
Remember that not everything you enter in your tax software goes to the IRS. Check your copy of your tax return to see what information the IRS has.
Why did the IRS choose to audit your mileage?
While the IRS can match your income to your 1099s, they don’t have much information to match to your vehicle expense deduction. When they audit you, they’ll never know for sure if your mileage deductions were right or wrong.
There are several things that can trigger an audit.
- You got picked randomly.
- Your deductions were much higher or lower than people in similar work. The IRS compares tax returns against each other and looks for people who don’t match the average numbers.
- The IRS adjusted your tax return in the past and wants to make sure you’re following the rules now.
- You made a math error or data entry mistake on your tax return.
What are your chances of being audited?
The IRS keeps your exact chances of being audited secret. They don’t want people playing the “audit lottery” where they decide the low chance of being caught and fined is worth the potential tax savings if the IRS doesn’t notice their tax evasion.
What we do know is that the IRS audits different types of returns at different rates depending on the likelihood of finding underreported taxes. Mileage deductions are an area where people frequently cheat on their taxes, so the IRS does audit these at a higher rate.
There are public numbers on total IRS audits compared to tax returns filed. The IRS audits an average of 4.1 tax returns per every 1,000.
For people making less than $25,000 per year, the IRS audits 13 tax returns per every 1,000. The higher number is mostly due to the Earned Income Tax Credit.
But those numbers include everyone, including people with a W-2 job and no deductions. So the audit chances for your mileage log will be higher.
How does an IRS mileage audit work?
If you get audited, you’ll get a letter in the mail from the IRS. It will often come by regular mail, but if you ignore the first notice or the IRS wants to do a more extensive audit, you could get a certified letter.
Most of the time, you have to respond by mail. Only a very small number of IRS audits ask you to come to an IRS audit.
How long does the IRS take to audit you?
The normal timeline for getting audited is between a few months after you filed your tax return to up to three years after you filed.
The IRS can sometimes audit even older tax returns if it believes you may have underpaid your taxes by a very large amount or committed tax fraud.
What do you need to send the IRS?
The IRS will tell you what information they want to support your tax deductions. You can include additional information or explanations if you think it would be helpful or if you don’t have the exact documents the IRS asked for.
Once you send in your response, it will usually take several weeks or a few months for the IRS to get back to you. You’ll get another letter that usually says one of the following things:
- They’ve reviewed your information and aren’t making changes to your tax return.
- They need more information.
- Your deductions weren’t correct because you weren’t eligible or calculated them incorrectly. You have to pay additional taxes, interest, and penalties.
- You don’t have enough proof to support your deductions. You have to pay additional taxes, interest, and penalties.
What happens if you lose your audit?
If you lose your audit, you can either pay what the IRS says you owe or appeal.
If you decide the IRS was right but you don’t have the money, you can get a payment plan.
If you disagree with the IRS, follow the instructions on your letter for when and how to appeal. You’ll usually need to provide an additional explanation or any supporting information you might have that you didn’t send in response to the original audit notice.
In some cases, a lower-level IRS auditor makes a mistake or just gets too picky. When you appeal, it goes to someone higher up who may realize that you were right.
How do you prevent an IRS mileage log audit?
Since the IRS sometimes does an audit just to check your tax return, there’s no way to completely prevent a mileage log audit. The only factor that’s in your control is whether you fill out your tax forms correctly.
You can reduce your chances of losing an audit by keeping a detailed mileage log and other supporting information showing that you were working on those days.
Good supporting information can include your trip information from a gig app or work schedules and client contracts for other jobs.
Does the IRS require odometer readings?
You’ll hear mixed information on whether you need odometer readings.
Recording your odometer reading at the start and end of your work day is one way of keeping a mileage log.
If you track individual trips, you generally only need the starting point, destination, and mileage for that trip. There’s generally no reason to record your odometer for each trip, although some people who are familiar with the above method will insist that you do.
Does the IRS require you to track personal mileage?
You don’t have to keep detailed records of your personal trips, but you do need to know your personal mileage for the year. The IRS asks you to calculate your business use percentage even if you take the standard mileage deduction.
If you use a mileage tracking app, it will usually record all of your trips. You review your trips to determine if they were business or personal. The app then gives you your total business and personal miles.
Another common way to calculate your personal mileage is to take your odometer reading on New Year’s Day. That gives you your ending mileage for the previous year and starting mileage for the new year.
Use those starting and ending numbers to get your total miles. Then subtract your business miles to get your personal miles.
For example, if you had 30,000 miles at the start of the year, 40,000 miles at the end of the year, and recorded 8,000 business miles, you have 2,000 personal miles.
What if I didn’t keep track of my mileage for taxes?
The IRS doesn’t usually allow you to estimate mileage if you didn’t keep records. If they audit you and you don’t have records, they’ll usually deny the entire deduction.
In rare cases, such as a fire destroying your records, you may have options. Ask a tax accountant if you’re in this situation.
If you didn’t keep a mileage log during the year, you may still have ways of finding records of your trips and taking at least a partial deduction.
- A gig app like Uber or Lyft might record some or all of your miles
- If you were traveling to work locations, you might have addresses you can use to calculate your miles
- Your trips might be recorded in your Google location history or an auto insurance app
- If you use the actual expenses method, you might have receipts for expenses you know were 100% for business (you generally can’t take mixed business/personal expenses without having a mileage log to calculate your business use percent)
The above methods aren’t a substitute for a mileage log. They’re information that you can potentially use to create a mileage log IF you have enough information to prove both the miles you drove and the business purpose.
IRS Publication 463 (2021), Travel, Gift, and Car Expenses is a good resource for additional information about claiming your mileage and other vehicle expenses.
Does never getting audited mean you claimed your tax deductions properly?
Since the IRS doesn’t audit every tax return, not getting audited doesn’t mean that you claimed all of your deductions properly.
For example, when many people hear that they can’t deduct trips to or from home because those are non-deductible commuting miles, they often say, “but I’ve never been audited.”
If they get selected for an audit, the IRS will likely disallow those trips, charge them penalties and interest back to when their tax return was due, and may audit their other tax returns.