When you use an automobile in your business and claim vehicle-related federal tax deductions, you typically have to follow recordkeeping rules that are more strict than the requirements for other business expenses. These tougher substantiation rules call for logs detailing the usage of the vehicle, including the date, mileage, and purpose of trips.
The substantiation rules also apply when your business owns or leases vehicles for the use of your employees. You can get copies of auto usage logs from your employees or rely on a statement from each employee as long as you know the information is based on a properly kept log.
Either way, your employee must keep the records, and you report a summarized version of the information on your business tax return, typically on Form 4562. Failure to follow the rules can mean automobile deductions are disallowed or treated as a taxable fringe benefit to employees.
In some cases, your business can qualify for a safe-harbor exception to the substantiation rules when employees use company-owned vehicles. For example, if you have a written automobile policy prohibiting all personal use of a vehicle, including commuting, and the vehicle is kept on company property when not in use, detailed mileage records may not be necessary.
Please call us for help setting up a recordkeeping system that will keep your business vehicle expenses deductible.