Love those automobile expense deductions? Here’s how to keep them

Saturday, December 19, 2015

Love those automobile expense deductions? Here’s how to keep them

Automobile expense is a common deduction for anyone who travels for business.Unfortunately, many taxpayers do not keep good records and wind up estimating mileage, business use percentage and costs. Estimates are acceptable for some types of deductions under a court decision known as the Cohan Rule. Unfortunately, automobile expenses are not one of them. 

In September 2008 the United States Tax Court upheld the IRS disallowance of the automobile expense deduction claimed by a traveling salesman due to lack of substantiation.. The court and the IRS acknowledged that the taxpayer’s travel was for business and a deduction for mileage was proper. However, the taxpayer did not present documentation to substantiate the mileage and an estimate was not acceptable. Therefore, a significant deduction for automobile usage was denied.

carOne appropriate method for documenting automobile usage is a log which would include the total mileage that the auto is used during the year (recording the odometer at the beginning and end of the year will suffice) and the amount of business use each day (including the mileage driven and the business purpose).

Keeping track of the business use of automobiles on a daily basis can be annoying. But not doing so cash result in the loss of tax deductions if your tax returns are audited.

On another note, the standard IRS mileage rate that is used to calculate the deductible costs of automobiles used for business is 55.5 cents per mile for 2012. The rates for medical and charitable use of automobiles is 23 cents per mile and 14 cents per mile respectively.

Bruce S. Baron, CPA

6433 South Killarney Court
Centennial, CO 80016
Tel: 303.823.4664
Mobile: 732.685.5399