Did You Get Deductions for Business Use of Your Car?

At this specific time of the year, almost everyone filed his/her tax return. For those who haven't done so yet because of these difficult times, we are here to help. For the small business owners or self-employers that prefer to file their own taxes, please make sure you get deductions for business use of your vehicle. As our goal is to ensure that your business is successful, we are giving you some advice about the mileage.

You need to track your mileage and have the business reimburse you for the mileage periodically. Even when the business cannot reimburse you for the mileage, you still should record a due to owner to get the expense on the books. Clearly, you need to track mileage to and from clients. You should also record mileage to the bank for deposits, to the office supply store, post office or FedEx stores, to any seminars you take or conduct, and any other business related miles.

Remember, in regard to the IRS, auto deductions for business use of a vehicle must be substantiated for:

• the amount of the expense; and
• the time and place of business use; and
• the business purpose of the use

Say, for example, you regularly drive from your home in Ellicott City to many towns in Howard County to work. You provide a mileage log of dates, destinations, business contacts, and mileage for these travels. In support of your deductions, you provide to the IRS copies of vendors’ invoices, canceled checks and other supporting evidence to corroborate the business purpose for 18 of the 27 trips, so the IRS will deny your tax deductions for the other 9 trips for lack of documentation.

Say additionally for your job, you decided to run two side businesses from home: real-estate broker and property manager. You regularly drive around all over Howard County and even the Baltimore-area looking for properties to show clients.

For your tax purpose, you decided to present the calendar listing destinations and mileage. Let us assume that 2011, for example, you traveled from home, in Ellicott City, to 17 towns and cities, for a claimed total of 5,498 miles. The IRS will deny all of the mileage deductions. This is because the description of the list of destinations is vague. Generic information like the city name is not enough to support the deductions. Instead, it requires you to provide the addresses visited, and identification of clients or business purpose.

Our practice provides one hour free consultation for a first time client. In fact, if you need more help, don’t hesitate to contact us at (410) 203-1244 or www.elhadaccountingfirm.com. We are here to support your accounting, bookkeeping, and taxes needs.