Sure, you’ve been writing off your auto expenses for years, but how well do you think your records would stand up in the event of an IRS audit?
Lack of adequate documentation can result in the disallowance of your deduction should the IRS take a look-see.
Here are the three most important things you should know:
1. Before anything, you must be able to substantiate the total miles driven on the vehicle during the tax year. This is typically achieved with repair receipts, inspection slips or any other records that contain a date and odometer reading. We advise clients to take a picture of their odometer every year on January 1st.
2. Next, you must be able to substantiate the business miles driven on the vehicle during the tax year. You have to be able to demonstrate that there was a bona fide business purpose for using the vehicle. The IRS will ask for your log book or other records to verify the business mileage claimed. Your log or other formal record should show each date, destination, miles driven and business purpose of the trip. Your log should always have a current mileage reading and a mileage reading on January 1st. The IRS will also ask for your business appointment book or calendar to corroborate business miles entered in your log. There is no shortage of mileage tracking apps available to help simplify this task.
3. If you claimed actual automobile expenses on your return, as opposed to using the standard mileage rates ( 54¢ per mile in 2016, 57.5¢ per mile in 2015 and 56¢ per mile in 2014), you must be able to substantiate your expenses. Examples of actual auto expenses include expenditures for gasoline, oil, tires, repairs, maintenance, insurance, interest, registration fees and taxes. These are substantiated with invoices, receipts, cancelled checks, bank and credit card statements.
Want to learn more? Call us at 732-739-2632 for a consultation. Our Certified Public Accountants are ready to help.