Cultivating an Audit Trail for Business Deductions

When tracking deductions for operating a vehicle while on the job, it’s either counted by mileage rate or expenses. Below, we discuss how to record and track them by creating an audit trail, which is used to trace the transactions in an accounting record.

Here is a guide to what you need to know about 3 important audit trail items: 

1. Mileage – Most people use their personal vehicles when they need to travel for work, and they’ll typically get reimbursed for the number of miles driven. The IRS’s standard mileage rate includes the car payment and an allowance for fuel, maintenance, and repairs. Most business owners prefer this method because if they expense more than a car payment and those expenses, they will be able to deduct it and take the reimbursement. Most people are better off with this option, especially for those that drive a lot of miles. For those in extreme cases where they’re driving 1,000-2,000 miles a month, they may be reimbursed $650 to $1,300 a month. This is based on the second half of the 2022 mileage rate of 65.5 cents a mile. The IRS adjusts this rate every six months.
2. Auto Expenses – This is usually done for a business that needs a vehicle for a specific company purpose, whether it be a catering delivery vehicle or a repair van. In this case, it makes sense for the business to handle all auto expenses instead of only mileage. Keep in mind that if the vehicle is kept in the company’s name, that makes it another potential liability. If a business has no real need for a vehicle, mileage is the preferred method. Tracking mileage in a log book is the best way to record trips for reimbursement, while a few other ways would be through QuickBooks or via an app on your phone.
3. Receipts – The same rules apply for vehicle reimbursement as they do for retail stores: always remember to take a receipt! But, if you forgot to get a receipt, you can also use a payout voucher. When you gather your receipts with your bank and credit card statements at the end of the month, you can complete a payout voucher for missing receipts. A payout voucher is limited to $75. The IRS will recognize this as a receipt, but we don’t suggest making a habit of it. Store your receipts and mileage logs in one spot so you can reference them if necessary.

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