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Substantiating Business Driving the Right Way

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Small Business Owners and Business Driving: What You Need to Know

Small business owners often use their personal vehicles for business driving to save costs. This practice is not only cost-effective but also permissible for tax purposes. However, to deduct the cost of driving for business, you must substantiate the business’s use of the vehicle according to strict tax rules. Here’s how to do it the right way.

Records Must Be Contemporaneous

It’s essential to note required information in a logbook, app, or other record at or near the time of each business trip in the vehicle. Creating mileage records solely for audit purposes, like in one case where a contractor did not make contemporaneous notations, is not sufficient. The IRS requires detailed information to substantiate business use.

Required Information

Simply recording the date and mileage for business travel is not enough for tax substantiation. The IRS mandates documenting the date, destination, business purpose, odometer readings, and expenses type and amount for each trip. Even if you use the standard mileage rate, all other information must be recorded.

Sampling for Recordkeeping

Instead of documenting every business trip, you can maintain sufficient records for specific periods within a tax year to estimate the total business use. This method, known as “sampling,” requires accurate representation of overall usage. For example, detailed records for the first week of each month can estimate annual business use.

Documentary Evidence for Actual Expenses

If you opt for actual expenses instead of the standard mileage rate, you must retain receipts and other documentation supporting business-related costs. This is in addition to the mileage record and other required information.

See also  Standard Mileage vs Actual Expense Method of Deducting Vehicle Expenses in 2025

Distinguish Between Business and Personal Driving

Personal driving expenses are not tax-deductible. Commuting costs and personal trips are considered non-deductible. Keep track of miles traveled for business-related purposes to claim deductions accurately.

Conclusion

Self-employed individuals can deduct the cost of business driving, while owners of corporations must arrange for reimbursement using an accountable plan. Maintaining adequate records of business driving may require effort but is rewarding. For instance, using the IRS standard mileage rate, driving 8,000 business miles can result in a $4,840 deduction.

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