The IRS says that to deduct your mileage as a business expense on your tax return you must keep a record of your business trips during the year and the total miles your drive. This is often used for the mileage deduction for business use of a personal car. But, what happens if you use your business car only for work purposes? Do you still need a mileage log?
When you drive your car for business, the IRS says you must document the:
These documentation requirements are the same whether you use the standard mileage rate (53.5 cents per mile for 2017) or deduct your actual expenses for gas, repairs, depreciation, and other car costs.
The best way to substantiate your mileage is to keep a mileage log that you update at least weekly. An app like MileIQ is a simple way to ensure you're maintaining the type of mileage log the IRS wants.
You might be thinking that this is a lot of trouble. It makes perfect sense that you must keep all of this documentation when you use the same car for both business and personal driving. Obviously, you can‚Äôt know how many of the total miles you drove were for business purposes unless you keep a record of all your business trips.
But what if you use a car 100 percent for business and never make personal use of it? In this event, shouldn't a record of the total miles you drove during the year (all of which were business miles) be enough for the IRS?
The answer is: no.
Even if you use a car or other vehicle 100 percent for business, you must keep a detailed mileage log or other record of your business mileage. Gary Roy, a self-employed aerospace consultant who ran his business from his Long Beach, California home, learned this rule the hard way.
He purchased an Aston Martin Vantage for $75,045 that he used to visit his clients. In 2012, he claimed he drove the car 8,900 miles and took a $21,747 deduction for car expenses. When the IRS asked him for proof of his mileage he submitted a single sheet of paper showing the Aston Martin's mileage at the beginning and end of the year and a statement that the vehicle's business use was 100 percent.
Roy said that he thought that this log was sufficient since the car was used strictly for business. The IRS and Tax Court disagreed. The same documentation requirements apply for vehicles used 100 percent for business and less than 100 percent for business. Roy lost most of his mileage deduction. (Roy v. Comm'r, T.C. Summary Opinion 2016-77.)
If you own two or more vehicles, you can divide your business and personal driving among them any way you want. For example, if you own two cars, you could use one vehicle 100 percent for business and the other for all your personal driving.
Yet, this is not required. You can use each car for business and personal use. In one case, for example, a taxpayer had three cars and used each of them 50 percent for business and 50 percent for personal driving. The Tax Court had no problem with this arrangement. (World of Service, Inc. v. Comm‚Äôr, TC Memo 1995-456.)
But, no matter how much or how little you use a car for business, you should document your business mileage with a mileage log. You should keep a separate log for each vehicle.
If you own only one vehicle, the IRS will never believe that you drive it only for business. The IRS specifically asks you on Schedule C if you have another vehicle available for personal use. If you say "no" and claim 100 percent business use for your single vehicle, you can expect the IRS to question your deduction.