The law generally requires individuals and businesses to maintain records and to disclose income via tax returns. It also requires taxpayers to keep accurate records in order to deduct expenses on their tax returns. The IRS has the authority to demand proof of income and expenses for a specific period of time after a tax return is filed. Many people who deduct business expenses do not realize the requirement to maintain books and records until the IRS demands these records. If a taxpayer is not able to provide the necessary documentation to prove an expense, the IRS can disallow it entirely. It is expenses related to vehicles that is oftentimes the most scrutinized by the IRS.
If you use your vehicle for business purposes and wish to deduct the associated mileage, you must be able to inform the IRS of when you began using the vehicle for business purposes. Furthermore, you must show the total number of business miles driven. For most, a mileage log is the most effective way to document this expense. I suggest that you record the date, purpose of the trip, starting location and destination and the amount of mileage. You should keep the mileage log for seven years.
In addition, you should keep receipts for all gas, oil, maintenance and repair expenses. A credit card statement that merely reflects that funds were spent at a gas station may not be sufficient to prove what product or service was purchased or whether it was for personal or business use.
If you did not keep contemporaneous records reflecting your mileage and are under audit, there may be other options available to you to attempt to claim part or all of the expense.