Deducting Business Auto Expenses

small-business-auto-deductionsRunning a business keeps you very busy, which is why some kinds of necessary tax documentation tends to be inadequate or get lost easily.  Business auto expenses are one area that is an important deduction, but annoying to keep track of daily. But you should get all deductions you are entitled to, so if you are using your auto for business and are entitled to the deduction, you are probably wondering “what records do I need for business auto expenses?” 

Document  Your Auto Expenses

The most important thing you can do when making business deductions is to keep good records.  Determine if the car is used solely for business or for both business and personal errands.  From there, you will want to start documenting the mileage you use for business reasons.  This means you will want to start a log to help you keep track of business mileage.

Keeping good contemporaneous records is important in case the IRS questions your deduction. It also insures that you take the full deduction you are entitled to have. Keeping good notes in your calendar about whom you met with & the business reason will help support your auto deduction, as well as, any other business expenses related to the meeting or trip.

There are phone apps now that can help you track auto mileage & expenses. Or you can do it manually by keeping a notebook or adding it to your calendar memo section. You’ll need this information: date, the starting mileage on the vehicle, the ending mileage on the vehicle, the total mileage used for the trip, the purpose of the trip, and the destination.  You may also want to add details such as client’s names, in case verification is needed. 

Standard Mileage Deduction or Actual Expenses Options

The IRS allows you to deduct car expenses via two methods, the standard mileage method or the actual expense method.  You will want to keep records of actual mileage either way. 

With the standard mileage method you multiply your number of miles times the IRS mileage rate, which is changed by the IRS periodically. You’ll need to check each year to find out what the current allowable rate per mile is. If you plan to use the standard method there are certain rules you must follow such as you must not have claimed a section 179 deduction on the car or have already gotten a qualified reimbursement.  If going this route be sure to read through the information carefully so you understand all of the requirements. 

If you choose the actual expense method, you will need to keep very good track of all expenses you are claiming for gas & repairs, including copies of your receipts. 

With the actual expense method, you can claim deductions for gas, oil and tire use, repairs to the car, insurance for business purposes, as well as fees due to licenses or registration.  Deprecation in car value due to mileage for business purposes can also often be deducted but be sure to read the publication on the limits and rules for this deduction. 

Typically, you will need all receipts for costs you will be deducting for business purposes such as oil changes and repairs, receipts for tolls, and overall what the government calls “adequate records or sufficient evidence to support claims”.  This is why keeping a good record of all expenses, dates, locations and business reason is a great way to be prepared and have accurate records for your business auto expenses.

More information is on the IRS site in Publication 463.

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