Bob Parrish C PA. P.C.

Legal Requirements for Car Expenses 

Telephone — 
FL 941/387-0926
TX 915/367-3465

Fax— 
FL 941/387-0823
TX 915/367-3465

Email: pro1040@home.com On the Web: www.pro1040.com

Consultant & CPA For
Taxpayer Advocate
Individuals
Shareholders
Partners
LLC Members
Beneficiaries
Trustees & Estate
Administrators
Sole Proprietors
Mgt. Consulting
Accounting

Simply to Help —Helping You
To Keep More Of What You
Earn and Helping You To
Protect What You Keep

  - Help To Keep Your Life In Balance

Warning   

CLICK AN IMAGE OR READ

Question or Topic

If a car is used for business only by an individual that stores the car at a personal residence, must the business portion must be proven?  

The Answer

Car expenses. Regardless of the percentage of business use, if the vehicle can carry a passenger and it is at home then the documentation must be maintained.  The ONLY exceptions are for such vehicles as ambulances, police cars, dump truck, etc.  IF the vehicle is stored on the company premises while not in business use there are exceptions.

FAILURE TO CREATE AND KEEP AVAILABLE THE REQUIRED DOCUMENTATION WILL GUARANTEE AN IRS CHALLENGE - AND PROBABLE CHARGE FOR ADDED TAXES, INTEREST AND PENALTIES.

Regardless of whether you use the actual expense method or the standard mileage allowance for your car (or a car that your employer provides you with), certain record keeping requirements apply. You must keep track of the number of miles you drive each year for business, as well as the total miles driven each year. You must also record the date of the business mileage, the designation of the business travel and the business reason for the car expense. It is advisable to maintain a daily travel log or diary in which you record the date, the destination, the business purpose of the trip, and the number of miles driven (use the odometer readings at the start and end of the trip, and then total the miles for each trip). Be sure to note the odometer reading on January 1 each year.

If you use the actual expense method, you must also keep a record of the costs of operating the car. These include the cost of gasoline and oil, car insurance, interest on a car loan (if you are self-employed), licenses and taxes, and repairs and maintenance. Record these amounts in your expense log or diary.

If you lease a car, you must keep track of the amount of the lease payments, in addition to the number of miles driven (and the number of business miles), the dates of travel, destinations, and purpose for the travel

Summary - document the following:

• Beginning and Ending Odometer reading each year
• Date of each trip
• Number of miles (your departure location and destination location)
• Business purpose, name of business, contact person

Solutions are dependent upon facts & circumstances, law and the objectives.  These elements vary from one time to another, from one circumstance to another and from person or entity to another

Business-related transportation includes traveling from one job to another; traveling from one customer or client to another; and running business-related errands such as picking up supplies, going to the post office, or making a bank deposit. If you are an employee with a regular place of business and you are asked to work at a "temporary" business location, the cost of transportation between your home and the temporary location is deductible as well. On the other hand, mileage associated with commuting between your residence and your regular business location is nondeductible, unless your home is your principal place of business. In this case, you generally can deduct the cost of traveling from your home to any business destination.

Although the fine print concerning the auto expense deduction can be tricky and the record keeping cumbersome, you can save valuable tax dollars by claiming qualified expenses.

Here are some tools to help you with the chore:

Annual information (if you have Acrobat reader, you can look at an example prepared by the IRS - Daily car Log  Weekly Travel Expense Automobile Mileage Logbook)

The form below is for recording your business trips in your automobile.

In a very few circumstances the chore can be reduced somewhat:

• Use a RANDOM sampling method: For example track the business trips by using a rotating weekly sample for each month of the year.  In January you would record the first week, February the second week, in March the third week, etc.  Start over with the fist week once all weeks have been sampled and continue this for all months of the calendar year.

• The level of detail required to substantiate business use varies. For example, an individual who regularly drives an established route to make deliveries satisfies the adequate record requirement by recording the mileage of the delivery trip once. S/he then has to make notations of the date of each trip backed up by receipts or similar records. Reg. Section 1.274-5T(c)(2)(ii)(C).
• The paperwork required may already be in your current system and a part of your routine business practice.  The law does not mandate how you keep the records or the form of the records, only that you create and keep the records.  For example you may have calendars, delivery tickets, paid bills, invoices, or other items you routinely prepare that show portions or all of the information required.  To read more about this please read Car - law requirements for recordkeeping

  Here is a quotation from the tax code for your citation of this statement:

  Reg 2.274-5T

  (i) IN GENERAL. If a taxpayer fails to establish to the satisfaction of the district director that he has substantially complied with the "adequate records" requirements of paragraph (c)(2) of this section with respect to an element of an expenditure or use, then, except as otherwise provided in this paragraph, the taxpayer must establish such element-- 

                 (A) By his own statement, whether written or oral, containing specific information in detail as to such                element; and 

                 (B) By other corrobative evidence sufficient to establish such element.

   

   

 Engagement Status Letter ~ WARNING!