IRS mileage reimbursement – How does it work, and can the IRS ask you for odometer readings?
We’ve seen this question floating around the internet lately: Can the IRS ask for odometer readings if you are using the IRS mileage reimbursement rate to claim your driving expenses? The answer is yes, but there’s more to it than that.
You are entitled to business driving deductions if you use vehicles for your business. You can even deduct business expenses for a car that you use for both business and personal reasons. Just document your business-related usage. There are a couple ways you can claim deductions, and also a few ways you can document your expenses. Here’s what you need to know about business driving deductions and IRS mileage reimbursement.
How can you deduct business driving expenses?
You can deduct the expenses from driving for business-related purposes in two ways: Actual expenses and the standard mileage rate.
Actual expenses would include documenting the payments you are making on the car or depreciation, registration, licenses, repairs, oil, parking fees, and anything else you would be paying to operate the car when it is being used for business. More information on that can be found on IRS Topic No. 510 – Business Use of Car.
The standard mileage rate changes each year. In 2019 the rates are as follows:
- 58 cents for business
- 14 cents for charity
- 20 cents for medical moving
The IRS mileage rate covers car-related expenses, including gas, normal wear-and-tear, repairs, tire cost, oil changes, and more. Expenses like parking and tolls are not included in the calculation of the mileage rate and can be documented elsewhere if you are using this method.
Keep in mind, if you choose the standard mileage rate, you have to choose it for the first year with your car in the business, and then you could change and choose to use actual expenses, but you can’t do it the other way around. Decide what makes the most sense for you, your car’s expenses, and your business usage.
If you claim your business miles at the IRS rate, can they ask for odometer readings for your vehicle?
You may choose to use the standard mileage rate either because you think it’ll cover your actual expenses, or you want to keep things simple. However, if you choose this method, you still need to document your expenses, as directed under Publication 463.
You don’t have to use odometer readings for this documentation, however. You can, instead, record your expenses with “adequate evidence” of your activities. Keep a driving record with the time and date of the drive, the total distance you traveled, where you were headed, and your drive’s business purpose. The IRS recommends written evidence, either handwritten or on a computer. Keep these records in a timely manner by making sure you document daily, or at the very least, weekly.
You can also document your mileage throughout the year. Include receipts and documents from mechanics or vehicle inspections that show information like mileage at the beginning and end of the year.
What other limitations should you be aware of?
There are a few other limitations you need to be thinking about when you’re deducting automobile business expenses. If you use a depreciation method under the Modified Accelerated Cost Recovery System (MACRS), for example, you can’t use the standard mileage rate to deduct as well, because that is a consideration being factored into the rate. If your business is using more than four vehicles simultaneously (out on the road at the same time), you can’t use the standard mileage rate. Learn more about limitations on the IRS Bulletin 2010-51.