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IRS ISSUES CAR EXPENSE 'FACT SHEET'

October 30, 2006

The IRS has issued a handy summary of the rules governing car and truck expenses. The "Fact Sheet" (FS-2006-26) discusses what car use is deductible and summarizes the standard mileage rules. From the fact sheet:

In order to claim a deduction for business use of a car or truck, a taxpayer must have ordinary and necessary costs related to one or more of the following:

* Traveling from one work location to another within the taxpayer’s tax home area. (Generally, the tax home is the entire city or general area where the taxpayer’s main place of business is located, regardless of where he or she resides.)

* Visiting customers.

* Attending a business meeting away from the regular workplace.

* Getting from home to a temporary workplace when the taxpayer has one or more regular places of work. (These temporary workplaces can be either within or outside taxpayer’s tax home area.)

It also lays out the basic recordkeeping rules for car use:

It is important to keep complete records to substantiate items reported on a tax return. In the case of car and truck expenses, the types of records required depend on whether the taxpayer claims the standard mileage rate or actual expenses.

To claim the standard mileage rate, appropriate records would include documentation identifying the vehicle and proving ownership or a lease and a daily log showing miles traveled, destination and business purpose.

For actual expenses, a mileage log helps establish business use percentage. Taxpayers should also retain receipts, invoices and other documentation to show cost and establish the identity of the vehicle for which the expense was incurred. For depreciation purposes they need to show the original cost of the vehicle and any improvements as well as the date it was placed in service.

And no, a log done just in time to give to an IRS agent doesn't work very well.

For more information, IRS Publication 463 has more details on vehicle expenses.

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