Taxpayers must be prepared to substantiate auto deductions with adequate records or sufficient evidence. Failure to do so will cost you thousands of dollars in increased taxes and/or fees to accountants or tax lawyers if you are audited.
Taxpayers should be able to substantiate:
- The amount of each expenditure for the vehicle, including purchase price, vehicle improvements, lease payments, repair and maintenance, gas and other expenses.
- The total mileage on each business vehicle and a breakdown of the business, personal and commuting miles.
- The date of the business use and a brief description of the business purpose for each use and expense.
Records should be maintained in an account book, diary, log, trip sheet or similar record near the time of usage [Brown, TC Summary Opinion 2005-155(2005]. Without a written record of business or investment mileage, a tax auditor will not allow the deduction.
Without a mileage log, the taxpayer will have to convince an appeals officer or the tax court (at substantial increased costs in legal and accounting) through oral testimony and other circumstantial evidence. This can include statements from employers and customers, invoices that required the use of the taxpayer’s car for ordering and delivering and entries in calendar programs.
I prepare hundreds of business returns every year and have spoken to each one of them about these requirements. Still, I can count on one hand the business owners who actually keep a log.
Technology today can be very helpful. Both the I-Phone and the Android have an App that assists in tracking business mileage. Be sure to look for one that exports to a computer file such as Excel in order to keep a hard copy.
You can also use a digital recorder to record the necessary information. Be sure to export the file to your computer. You should also consider having this file transcribed so you can have a hard copy for your file.
Like any good CPA, I need to add a disclaimer: unfortunately, it is impossible to offer comprehensive tax info over the internet, no matter how well researched or written. And remember, I love my readers but having me bookmarked on your computer doesn’t make you a client: before relying on any information given on this site, contact a tax professional to discuss your particular situation.