Tax Tip: Documenting business use of your personal automobile 2017

If you use your personal vehicle for work you may be able to write off the costs on your tax return. To qualify you must use your car in your job for the convenience of your employer or in your own business. You must maintain adequate records to prove your business use. If you can meet these requirements, then your unreimbursed auto expenses may be deducted.

Substantiating or not adequately documenting the business use is where most taxpayers find themselves in trouble. (The IRS is really focusing on this area during an audit.) If you claim a business expense deduction for your vehicle without proper documentation, you can probably expect the IRS to disallow the deduction in an audit. You shouldn’t assume the IRS would compromise and allow your deduction based solely on your testimony. The best evidence is a detailed log with an entry for each trip; however, diaries, trip sheets, expense reports or similar written evidence is probably adequate.

Ideally, the record should be prepared at or near the time of the business use. The best way is to keep a logbook handy in your automobile to record your miles as they occur.

If you plan on taking an auto deduction this year, be prepared to answer the following questions for each auto when you file your tax return, in addition to your daily mileage log.

1. Do you have evidence to support your deduction?

2. Is your evidence written?

3. What is the total business and total personal mileage for the year?

4. What was the beginning and ending odometer reading for 2016?

There are generally two methods for computing your auto expenses; the standard mileage rate method and the actual cost method. Normally, you can use whichever method gives you the largest deduction. Whether you’re using the standard mileage method, 54 cents per business mile for miles driven, or you’re writing off your actual costs, you will need to keep your daily mileage log. Make sure you have all these totaled & documented before you come to see your tax preparer.