Auto and Vehicle Substantiation Requirements


The deduction you take for auto and vehicle expenses must be substantiated in the event of audit by the IRS. The rules related to these expenses are contained within Section 274 of the Internal Revenue Code.  These rules place the burden squarely upon the taxpayer and contain very strict recordkeeping requirements.  The rules are summarized on page 26 of IRS Publication 463. Please be sure you are familiar with them.
 
You must keep written, detailed and contemporaneous records for auto, travel and meal expenses. For vehicles used for business that includes maintaining a log, diary, calendar or some other form of documentation of where you went, the date, the miles and the business purpose.  This record should be kept contemporaneously which means you need to keep them as they occur. If you do not use the mileage method you'll still need to keep the log book, to prove your business-use percentage, and you'll also need to get a receipt for every item of vehicle related expense you incur.
 
 
You can buy a pre-printed, manual log from a specialty publisher such Dome Publishing.  It is inexpensive, simple and probably still the most popular method.  Another less commonly used method is to keep a mini-tape recorder in the vehicle, voice record the information you need and have it transcribed weekly.
 
In this electronic age I highly recommend using pocket PC with a program such as TripMate. The information can be exported and the program is easy to use. For those of you who like the latest-and-greatest new toys there are also GPS systems out there.
 
If you use QuickBooks there is a section under the "Company" column called "Enter Vehicle Mileage".  It contains a calendar and also links to employees and to customers so you will be agble to enter mileage by date and by customer.  You will be able to track mileage and also print out any information you need for audit purposes.
 
Which system is best? Whichever one works for you. The bottom line is that you need to document your vehicle epenses and mileage.  You will find more information about vehicle expenses in the "Strategies" section, "Strategies for Business Owners", under "Travel and Entertainment: Maximizing the Tax Benefits."
 
I realize that all of this requires a considerable amount of time and painstaking effort but you'll need to do this if you want your vehicle deduction to survive scrutiny. Please call me if you have any questions.
 



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