Vehicle-Related Deductions and Substantiation Requirements

In an audit involving a business, the IRS is quick to focus on vehicle expense deductions and whether such deductions are adequately substantiated. Thus, practitioners should ensure that the following are part of any client’s business tax records with respect to each vehicle used in a business:

(1) the amount of each separate expense with respect to the vehicle (e.g., the cost of purchase or lease, the cost of repairs and maintenance, etc.);

(2) the amount of mileage for each business or investment use and the total miles for the tax period;

(3) the date of the expenditure; and

(4) the business purpose for the expenditure.

For purposes of the above, the following are considered adequate for substantiating such expenses:

(1) records such as a notebook, diary, log, statement of expense, or trip sheets; and

(2) documentary evidence such as receipts, canceled checks, bills, or similar evidence.

It’s important to impress upon clients that records are only considered adequate to substantiate vehicle expenses if they are prepared contemporaneously at the time the expense is incurred.

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