Tax Insights

Your Guide to State, Local, Federal, Estate + International Taxation

Don’t lose your deduction: Proving vehicle use

Tax law surrounding business vehicles (or any tax law for that matter) can be complicated. What do you need to give to the IRS if your vehicle use deduction is ever challenged?

Don’t miss: Business meals + expenses

A taxpayer must maintain adequate records or other corroborative evidence to support the business portion of auto expense. To meet this requirement, a taxpayer should maintain an account book or log (or similar statement of expense or trip sheet) that establishes each business expense.

The Internal Revenue Code generally disallows any deduction unless the taxpayer can substantiate by adequate record or sufficient evidence of the (1) amount of an expenditure (or mileage for vehicles), (2) time and place of use, (3) business purpose, and (4) business relationship. Failure to comply with this requirement can result in loss of the deduction. Also, merely applying signage or other advertising onto the vehicle does not convert what would otherwise be personal use to business use; adequate substantiation is still needed.

The taxpayer may substantiate vehicle expenses by maintaining both:

  1. An account book, diary, or similar record; trip sheets; expense reports; or other corroborative evidence.
  2. Documentary evidence including receipts, paid bills, and similar information.

The detail required to document business use varies depending on specific facts and circumstances. For example, an individual who regularly drives an established route to make deliveries can satisfy the adequate record requirement by recording the length of the delivery trip once, with a notation of the date of each trip if the date is further substantiated by receipts or similar records. In some cases, a log maintained for part of a year may suffice to establish the taxpayer’s pattern of business use. Most taxpayers can maintain a log or record for a portion of the year if it can be demonstrated that the period for which the record was maintained is representative of the vehicle’s business use for the entire tax year. Additionally, if adequate records or sufficient evidence are unavailable due to circumstances beyond the taxpayer’s control, the substantiation requirements will be deemed satisfied if the taxpayer presents credible evidence supporting the deduction.

We understand record keeping for vehicles can be cumbersome. However, we do encourage you to keep the best contemporaneous records as possible. This will ensure your valuable vehicle deduction won’t be reduced or eliminated. Contact your Henry+Horne advisor with any questions.

Beth Hawley