Often in an IRS audit, the examiner will ask for your mileage log at the beginning of the audit. If you do not have a mileage log, then you are in danger of losing more than just vehicle deductions. Think about it. If you don’t have a log for mileage, what is the IRS examiner going to think about your other records? Right—he or she is going to think your tax return may need extra scrutiny.
The IRS says that you may keep an adequate record for part of a tax year and use that part-year record to substantiate your vehicle’s ministry use for the entire year. To use a sample record, you need to prove that your sample is representative of your use for the year.
By using your appointment book as the basis for your mileage, you not only build great business-use proof, but you also do a great job of showing that your sample vehicle record mirrors your general appointments during the year. (If you are using a mileage app, synchronize the app results with the appointment book.)
The IRS illustrates two possible sampling methods:
- One identical week each month (for example, the third week of each month)
- Three consecutive months
We don’t recommend the one-same-week-each-month method because it is difficult to start and stop a record-keeping process.
The three-consecutive-months log requires only one start and one stop, and you are rewarded with nine months of mileage-log freedom. For this reason, the three-month log is the superior alternative. Before getting into the three-month method, we should note that once you have done three months, you are in the habit. You might find it easier to continue all year, rather than stop this year and then have to start again next year.
Here are the basics of how the IRS describes the three-month test:
- The taxpayer uses his or her vehicle for ministry use.
- Members of the family use the vehicle for personal use.
- The taxpayer keeps a mileage log for the first three months of the taxable year, and that log shows that 75 percent of the vehicle’s use is for his or her ministry.
- Invoices and paid bills show that his or her vehicle use is about the same throughout the year.
According to this IRS regulation, this three-month sample is adequate to prove 75 percent business use.
Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
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