Keeping Records for Your Business Car
The rules for claiming business car deductions are tough. In lieu of keeping all the required records, you might simplify matters somewhat by using the standard mileage rate.
Starting point: To claim deductions for business car expenses, you must establish the percentage of business use of the car and substantiate business expenses. Keep records of the time, place and business purpose of each business trip whether you are deducting actual expenses or using the standard mileage rate.
In addition, if you use the actual expense method, you must record the total mileage for the year, plus keep records and receipts for out-of-pocket expenses such as gas, oil, repairs and insurance. Your total expenses are pro-rated based on the percentage of business use for the year.
The IRS has indicated that the best method for proving business mileage is to keep a contemporaneous diary, log or other ledger.
New case: A couple owned a Mercedes-Benz, a Cadillac and a Suburban. Both the husband and wife were business owners. They claimed that the husband used the Mercedes exclusively for business driving, that the wife used the Cadillac exclusively for business driving and that both of them used the Suburban for personal driving.
For the 2004 tax year, the husband claimed that he traveled more than 51,000 business miles, and the wife reported travel of more than 43,000 business miles. They both maintained mileage logs on Excel spreadsheets and listed the dates and odometer readings for each trip.
However, the logs included numerous entries for holidays, and they regularly showed daily business travel of hundreds of miles. Also, the logs were vague and failed to list specific addresses for business visits. In one instance, the husband even deducted trips to the grocery store because he claimed the trips were to discuss business in the meat department and hand out business cards. Result: The Tax Court denied part of the deduction.
Of course, entries in logs made at or near the time of the events are more credible than those prepared at a later date. Keep your original logbooks and notes in case the IRS ever challenges your deductions.
End of the road: Alternatively, you might have your employer reimburse you for business travel expenses. If you are reimbursed for actual expenses, keep the same detailed records. However, if you receive a mileage allowance, you only have to show the time, place and business purpose of each trip and the total business mileage.
Tax Shortcut for Deductions
The standard mileage rate for 2010 tax returns is 50 cents per business mile, plus any business-related tolls and parking fees.
For simplicity, let’s say your actual business car expenses for 2010 are $5,000. You traveled 12,000 business miles and incurred $200 in related tolls and parking fees. Therefore, the standard business mileage rate produces an overall deduction of $6,200 (50 cents times 12,000 miles plus $200)—or $1,200 more than the actual business car expenses.
Caution: Every situation is different, and not everyone qualifies for this method. Obtain professional assistance.