August 16, 2017: Automobile Expense Deduction
If you use your car for business purposes, you ordinarily can deduct auto expenses. You generally can use one of the two following methods to figure your deductible expenses: (1) the standard mileage rate, or (2) actual car expenses. If you use actual expenses, you can deduct the business portion of depreciation, licenses, lease payments, registration, gas and oil, insurance, repairs, garage rent, and tires. Tolls and parking fees incurred for business purposes are deductible under both methods. The business portion is calculated by dividing business miles into total miles driven. Both methods require the taxpayer to substantiate the deduction (see below) with a mileage log.
IRC Reg. § 1.61-21(a)(1) provides that an employer-provided automobile is taxable income to the person receiving the benefit. However, mileage on an employer-provided auto is a nontaxable fringe benefit to the extent that it is (1) employment related business mileage, and (2) substantiated to the employer per Reg. § 1.132-5(b)(1) & Reg. § 1.132-5(c)(1). The requirements for substantiation are defined in IRS Publication 463. For a taxpayer to deduct auto expenses, the IRS requires a mileage log which documents the date and distance of each business-related trip, the destination of the trip, the business purpose of the trip, and total mileage (business and personal) for the year.
If you use your car for business purposes, you ordinarily can deduct auto expenses. You generally can use one of the two following methods to figure your deductible expenses: (1) the standard mileage rate, or (2) actual car expenses. If you use actual expenses, you can deduct the business portion of depreciation, licenses, lease payments, registration, gas and oil, insurance, repairs, garage rent, and tires. Tolls and parking fees incurred for business purposes are deductible under both methods. The business portion is calculated by dividing business miles into total miles driven. Both methods require the taxpayer to substantiate the deduction (see below) with a mileage log.
IRC Reg. § 1.61-21(a)(1) provides that an employer-provided automobile is taxable income to the person receiving the benefit. However, mileage on an employer-provided auto is a nontaxable fringe benefit to the extent that it is (1) employment related business mileage, and (2) substantiated to the employer per Reg. § 1.132-5(b)(1) & Reg. § 1.132-5(c)(1). The requirements for substantiation are defined in IRS Publication 463. For a taxpayer to deduct auto expenses, the IRS requires a mileage log which documents the date and distance of each business-related trip, the destination of the trip, the business purpose of the trip, and total mileage (business and personal) for the year.
Upon request, I provide my clients with a mileage log or recommend an app that they can download to collect the mileage log information. My goal is to get my clients in compliance. If you have more questions, please let me know.
