Hot Tips for The New Tax Year Part 8

DOCUMENTING BUSINESS USE OF YOUR PERSONAL AUTO!

If you use your personal vehicle for your work, you may be able to write off the costs on your tax
return. To qualify you must use your car in your own business. You must maintain adequate records
to prove your business use. If you can meet these requirements, then your 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. Also, there are some very
good mileage tracker phone apps that are free or very inexpensive.

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 2019?

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, 58 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.

STANDARD MILEAGE RATES
Business….. 57.5 cents (2020)   58.0 cents (2019)
Medical….. 17.0 cents (2020)    20.0 cents (2019)
Moving….. 17.0 cents (2020)    20.0 cents (2019)
Charity….. 14.0 cents (2020)    14.0 cents (2019)

THE EARNED INCOME CREDIT
You may be eligible for earned income credit this year if:

  1. Your earned income is less than $41,094 ($46,884 if MFJ) and you have one qualifying child.
    You may be eligible to receive up to $3,526 of EIC.
  2. Your earned income is less than $46,703 ($52,493 if MFJ) and you have two qualifying children.
    You may be eligible to receive up to $5,828 of EIC.
  3. Your earned income is less than $50,162 ($55,952 if MFJ) and you have three qualifying
    children. You may be eligible to receive up to $6,557 of EIC.
  4. Your earned income was less than $15,570 ($21,370 if MFJ) and you are at least age 25 but
    under age 65 by January 1, 2018. You may be eligible to receive up to $529 of EIC.

NOTE: Please bring some sort of documentation for each child indicating they lived with you in
2019, i.e. school record, medical statement, piece of mail, etc.

Check back each week for more tax tips from Tax & Accounting Plus