Business Deductions

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Small Business Deductions: Car and Truck Expenses

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Audit Proofing Your Car Deduction

Keep in mind, it is essential that you audit proof your car deduction or risk losing it should you ever be audited.

This means keeping a mileage log, diary, receipts, cancelled checks, repair bills, and any other relevant information and documents.

Actual Expense Method:

If you use the actual expense method you'll have to save receipts for repairs, maintenance, tolls, and any other documentation that supports your deduction.

You'll also need to be able to support your deduction for depreciation (or Section 179 deduction).

You'll need to set up a depreciation schedule showing:

The date the vehicle was placed in service
Its depreciable basis
A description of the vehicle
The depreciation method
The convention used
The recovery period.

Estimates are not acceptable to the IRS, unless your records were lost in some type of disaster or for some other reason acceptable to the IRS.

Mileage Allowance Method:

If you use the IRS mileage allowance method you need to maintain a mileage log. Without a written record of your mileage the IRS can disallow your deduction.

Schedule C:

Schedule C, Part IV, is where you provide information about your vehicle.

For example:

When did you place the vehicle in service for business purposes
Your business mileage, commuting mileage, and other mileage
Do you have evidence to support your deduction?

Tracking Business Miles

Keep a mileage log. Break it down into monthly business miles traveled.

At year-end, just add up each month's business miles traveled to find total business miles traveled for the year.

Your mileage log should include:

Beginning odometer reading
Dates traveled
Names of clients/customers visited
Business purpose of trips
Miles traveled on each trip
Ending odometer reading

Estimates of Car and Truck Expenses

Estimates of vehicle expenses are not acceptable to the IRS unless your information was lost or destroyed due to a natural disaster, fire or some other valid reason. In such a situation you may be allowed to reconstruct your records.

Mileage Sampling

If you have a pattern of business use, the IRS may allow you to record your mileage for a representative part of the year instead of the whole year (e.g., four months).

This may be the case if you tend to visit the same clients and do little driving soliciting new clients.