Indies are responsible for their business decisions. No excuse.

June --

I live in the State of Virginia and have been an indie for 7 years. I am in an audit right now. My original tax preparer said for mileage my gas receipts that I accumulated were fine . However, now that we are in the audit, she said I have to have a log. I was very upset she didn't tell me this 4 years ago.

Anyway, I researched the auto IRS publication regarding logs. It appears that to reproduce a mileage log, I have to use chronological receipts that are dated such as going to the post office, going to Office Depot, etc. I dug up my client files and researched dates of closing that I attended and when I had to meet clients for loan apps, credit pulls, etc. I also mapquested every place from the office to these locations.

It took 2 months to complete all this. I have a very tough auditor. Do you think this will suffice? Am I missing anything?

Mary


Dear Mary,

This is not a tough auditor. This is an auditor who is not lenient. The records that the auditor is requesting are pretty much standard. The problem lies in your having to reconstruct from activities of four years ago. Just think how easy it would have been had you kept records in a timely fashion. I explain In my Most Simple System of recordkeeping how it takes almost no time to keep a record of mileage. If you make a run to Office Depot simply write "errands Off-Dep" in your calendar and if you didn't note the mileage at the time then at year-end you could do your mapquest and enter the round trip total in your calendar.

Now let's look at responsibility and developing an indie business mindset. You, as an independent professional -- you don't say what profession -- have a responsibility to assess information and instruction given to you. If you went to a doctor and were told that you could eat four brownies a day and still lose weight, as welcome a message as that might be, you would know that it were incorrect. Right?

So look at what your tax pro told you: Gas receipts were enough to prove business mileage. You don't have to delve too deeply to wonder how a gas receipt proves that you drove to Office Depot or to a client's office. It was your responsibility to ask, "How do the receipts prove business miles to the IRS?" rather than just accept her too-easy-to-be-true instructions.

In your reconstruction or records, assess the time you are putting into this against how much work time you are losing in the process. If the additional tax is, let's say $500, are you losing more than $500 of work time. If yes. Then forgo the deduction and take the financial hit.

You might want to read these posts indie business mindset .

Best,
June