One of the most tedious chores for a business is keeping all required records related to a vehicle and business travel. These records are needed for tax and financial purposes. For taxes, the law is very specific on the records you’re required to keep if you want to deduct your expenses. Anything you can do to save yourself and your staff time and effort without jeopardizing write-offs is welcome.
Here are 5 tricks to consider using for tax recordkeeping for vehicle and travel costs.
1. Use an app
If you use a personal vehicle for business, you usually need an odometer reading for each business trip to show the portion of vehicle usage for business. This means jotting down the odometer reading at the start and end of each trip to see a customer, go to the bank, or visit a vendor. But this can be automated for you if you use an app designed for vehicle recordkeeping. The GPS on your mobile device reads the exact travel distance for each trip, noting the time and date. You only have to add to this record the purpose of the trip. What’s more, you can find an app that ties into your other accounting system (QuickBooks has its own app) to further simplify tax return preparation.
You can also use an app to keep track of your travel expenses while away on business. Be sure to check on all of the required information needed to deduct these expenses in IRS Publication 463.
2. Rely on sampling
IRS regulations permit you to use a recordkeeping method called sampling. This means if you have adequate records for a part of the year, you can extrapolate the results for the full year. For example, if you keep good records for the first week of each month that show that 65% of the use of your pickup is for business purposes, and your invoices and bills show the same business pattern for the rest of each month, you can treat this partial record as proof of 65% business use for the entire year. Similarly, you can keep records for one full month as proof of the full year’s vehicle usage, as long as the month is representative of your driving pattern for the year.
3. Scan receipts
Instead of saving scraps of paper, hotel printouts, and other written evidence of costs related to business travel, just scan them into your mobile device. Make sure you have a scanner app on your device.
The challenge with scanning receipts is to have a system for organizing them so they can be readily retrieved if or when needed.
4. Forget receipts
When you travel or are out and about in town on business, you don’t need to retain receipts if the cost of the expense is less than $75. For example, on an out-of-town business trip if you take a taxi from the airport to your hotel at a cost of $50, you don’t need a receipt (but must follow other recordkeeping rules for the expense).
But the $75 rule does not apply to lodging. So, if you stay at a Motel 6, you’re going to need a receipt regardless of the cost.
5. Rely on per diem rates
Instead of trying to substantiate lodging and meal costs while traveling away from your regular business location, you may be able to use a government-set daily rate:
- GSA.gov has per diem rates. There is a basic rate fixed for the government’s fiscal year ending September 30, with higher rates for certain destinations.
- IRS high-low substantiation rates: one rate for most locations within the continental U.S., but a higher one for travel to set locations. The rates also apply for the government’s fiscal year (those for FY 2019 are here ).
Note: Self-employed individuals can use per diem rates only for meals and incidental expenses (not for lodging).
Final thought
Work with your CPA or other tax advisor to make sure your recordkeeping practices for your business are in line with IRS requirements and financial reporting standards.
