During the Turbo Tax interview process for Business Income and Expenses, and the question for entering your mileage. I selected, "I'll enter my beginning and ending odometer readings for 2018. And I also entered the Miles Driven for Business. The miles that were entered was about 90% of the total miles. The next question " Did you document any of the work miles you drove for your business, and I answered " No. I didn't. I also entered all of the actual expenses for the truck .
The State of Oregon has audited my return and rejected it, stating the I need detailed mile logs to support the business miles driven and disallowed the Vehicle Depreciation. So, what am I not understanding? Is turbo tax in error, or is the auditor in error?
I looking at the Car and truck Expenses Worksheet it all matches the interview answers. and allowed the depreciation!
TurboTax is a software program that calculates your tax liability based upon your input. Your tax authority reserves the right to determine through an audit whether you can substantiate that input. If you did not have a contemporaneous log of your business miles you could not substantiate that input. TurboTax merely asked if you had the substantiation. It doesn’t enforce it or pass judgment on its absence.
Just because you did not keep the timely mileage records doesn't mean you are not required to do so ... the program asks the questions as required by the feds/state. And if you choose the " I did NOT keep records" then that was reported on the return which is like saying " come audit me now ... I am an easy target" and I would also expect a letter from the feds in due time. If they catch you on the lack of a timely written mileage record then they can disallow the entire vehicle deduction including the depreciation deduction.
Written evidence could be a log book or daily record that would include details about how, when and where a vehicle was used for business purposes.
See Evidence to Support Business Use of Vehicles for more information on the kind of records you need to keep.
A written record of your business mileage could be a log book, diary or calendar that would include details about how, when and where a vehicle was used for business. It's smart to take notes about your destination and purpose of the trip each time you drive for business; this is really what the IRS is looking for.
Write down your odometer reading on the first and last day of each year. This way you can compute your business-use percentage on the total miles driven. Also, you can use your repair receipts to support your odometer reading.
In addition to orderly records, the IRS is looking for supporting documents of all listed property expenses.
Show that your business expense records prove the following:
1) The expense is your obligation.
2) The expense is taken in the proper period. Your accounting period will affect this timing. For cash basis taxpayers, this means when the expense was paid. For accrual basis taxpayers, this means when the expense was incurred.
3) The expense is a legitimate business expense. That is, the IRS will look carefully to determine whether it was a necessary and ordinary expense given your type of work.
Paying by check or credit card provides proof of when the expense was paid, the amount of the payment, and the payee. Pay your vendors by check or credit card, since these tend to be your larger expenditures.
If you use cash for small expenditures, set up a petty cash system by writing a check to establish the fund. Save your receipts for petty cash whenever you reimburse yourself from the fund, and then write checks to replenish the fund when petty cash gets low.
If your records were lost due to circumstances beyond your control, such as by fire, you have a right to reconstruct your records as completely as reasonably expected. But if you were able to get duplicate records and did not, the courts will not allow estimation of business expenses here.
If there is no documentation, outside testimony can also be used as substantiation, but the IRS will review additional factors, such as the credibility of the witnesses and the amount and quality of the evidence.
had a client that did not maintain written contemporaneous mileage records. when audited by the IRS the agent asked for proof of mileage. through the use of hotel and motel bills and signed sales orders for businesses near the lodging facilities, we were able to convince the agent to accept most of the business mileage. so was your auditor correct? probably if you couldn't produce alternative support. was Turbotax wrong. probably not, since the courts and taxing agencies have accepted alternative means of supporting the deduction