Audit Proofing Your Car Deduction

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. 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. Without a written record of your mileage the IRS can disallow your deduction.

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 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.

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