Auto Deductions — Low Hanging Fruit for an IRS Correspondence Audit?

July 22, 2010 by Mike Verville

You use your car extensively for business, but do you get as much mileage out of your tax deductions? Taxpayers who use a passenger automobile, even a “luxury” automobile, in the pursuit of a business or an income-producing activity can deduct certain costs related to the vehicle’s acquisition and maintenance.  But determining how and when you claim expenses can produce significantly different results.

When claiming auto deductions, substantiation, substantiation, and more substantiation is the key element that will determine if the IRS will allow your auto deduction.  The IRS has recently added correspondence audits to its audit arsenal.  In a correspondence audit, the IRS sends a letter to selected taxpayers and requests evidence of tax deductions listed on their tax returns.  Recently the IRS has been targeting auto deductions because many taxpayers are not diligent in keeping a contemporaneous mileage log for business travel.  Often, the only document requested by the IRS correspondence audit is a mileage log.  If the taxpayer fails to produce a mileage log, the IRS disallows all of the auto expenses.  In addition, the IRS may open other tax periods once they determine the taxpayer does not keep a mileage log (expanding the audit for low hanging fruit).  The statute of limitations for tax returns is three years from the date the tax return was filed.  Thus, the IRS can collect tax, penalties, and interest (that can add up to thousands of dollars) with very little effort simply because taxpayers do not keep mileage logs.

With the help of a CPA, like those found at Wallace Neumann & Verville, you can understand and sort through the complicated issues surrounding business claims on personal vehicles, including:

 • Quantifying how much you use your personal vehicle for business purposes. (We can show you how to begin keeping a mileage log with the information the IRS requires – also, special rules apply if you use your car 50% or less in your business)

Determining which expenses are deductible and which are not. (Regular commuting to and from work is not deductible)

Choosing between claiming actual expenses and using the standard mileage rate. (The dollar amount of your vehicle operating costs determines which option is better for you)

Calculating the depreciation of your vehicle.

Making informed decisions means fewer headaches at tax time and greater tax deductions to you.  In addition, if you are selected for an IRS audit, you will have the knowledge to properly substantiate your auto deductions.

The Las Vegas CPA firm, Wallace Neumann & Verville, welcomes the opportunity to meet with you to evaluate your personal situation. Please contact me so we can discuss your needs and how we can help you.

For a FREE no obligation consultation regarding our tax services