Many taxpayers will claim a car and truck deduction on their Schedule C or business returns. Often, taxpayers are unaware of what documents they should retain to substantiate their deduction if selected for audit.
Deductions for car and truck expenses — overview
Deductions for expenses with respect to the use of passenger automobiles are subject to strict substantiation rules.
For expenses relating to passenger automobiles, a taxpayer must substantiate with adequate records or sufficient evidence
(1) the amount of each separate expense;
(2) the mileage for each business use of the passenger automobile and the total mileage for all purposes during the taxable period;
(3) the date of the business use; and
(4) the business purpose of the use.
The taxpayer may base the deduction on either actual expenses or standard mileage, not both.
Substantiation by adequate records generally requires the taxpayer to “maintain an account book, diary, log, statement of expense, trip sheets, or similar record” prepared contemporaneously with the use of the passenger automobile as well as documentary evidence of the individual, actual expenses.
If the taxpayer elects the actual expense method, a taxpayer must substantiate his business use percentage for the vehicle.
Required documents to substantiate actual mileage
If claiming actual mileage, a taxpayer should have the following documents:
1. A mileage log or trip calendar verifying business mileage;
2. Odometer reading from the beginning of the year and end of the year (found on repair receipts, inspection slips, or any other records showing total mileage for the year); and
2. Receipts of all actual vehicle expenses
In lieu of substantiating actual passenger automobile expenses, a taxpayer may calculate them by using the standard mileage rate established by the IRS.
If claiming standard mileage, a taxpayer should have the following documents:
1. A mileage log or trip calendar;
2. Odometer reading from the beginning of the year and end of the year (found on repair receipts, inspection slips, or any other records showing total mileage for the year)
Regardless of whether actual or standard mileage is claimed, a taxpayer must produce a mileage log if the car and truck expense is audited.
The mileage log should include all of the following:
- Dates traveled
- Names of clients/customers visited
- Business purpose of trips
- Beginning and ending odometer reading for each trip
- Total miles traveled on each trip
- Weekly and monthly summary of miles traveled
- Total annual miles traveled
There are a mileage tracker apps that can be downloaded on a smartphone which can help keep keep track of mileage. Alternatively, a mileage log book can be purchased at office supply stores.