Robert Loe CPA

Deducting Auto Expenses

One of the most common tax deductions taken, especially by self-employed individuals, is the deduction for business miles driven.  This deduction is calculated one of two ways:

(1)  Standard Mileage Rate: This method is based on the number of business miles multiplied by the IRS standard rate per mile, which changes each year.  The 2016 rate is 54 cents per mile and the 2017 rate has been lowered to 53.5 cents per mile.

(2)  Actual Expenses: This method is based on the full cost of operating the vehicle multiplied by the business use percentage (i.e. business miles divided by total miles driven for the year).

The IRS tends to be skeptical of these deductions, largely because they know that most taxpayers do not have sufficient records or proof for them.  There are two simple steps to take to help get the maximum deduction you are entitled to, as well as ensure that your documentation would stand up to the IRS’ rigorous standards in the event of an audit.

1)  Keep Track of All Auto Related Expenses for the Year

In most cases, taxpayers can elect to deduct a percentage of actual auto expenses if this yields a larger deduction.  These expenses include depreciation, lease payments, registration fees, gas, insurance, repairs, oil, garage rent, tires, tolls, and parking fees.  Keeping receipts for these items will keep the ‘actual expense’ option open and potentially increase the allowable deduction.

2)  Create and Maintain a Log of Business Miles Driven

Keeping a log of all miles driven for business is required whether the actual expense method or standard mileage rate method of calculating your deduction is used.  The IRS does not care about your non-business miles, and will disallow your deduction if your business miles figure is arrived at by subtracting non-business miles from total miles, or by the use of any estimation method.  The log should include the date, number of miles driven, and purpose of each trip.  It is also important to record the total (business and non-business) number of miles driven during the year, in order to calculate the business use percentage.

It is important to have documentation of business mileage if your return is selected for audit, because the IRS takes a dim view of deductions not clearly supported by facts.  By following these two easy steps you can maximize your auto expense deduction, and rest easy knowing that it is fully supported.

For more details, refer to IRS Publication 463: Travel, Entertainment, Gift, and Car Expenses.

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