Keeping Records of Business Usage

If, like most business owners, you use your vehicle for both business and personal purposes, you must allocate your vehicle costs associated with the business separately from those associated with commuting or personal use. Even if you use a car or truck only for business purposes, you'll need to keep records to prove it unless the vehicle, by its nature, is not likely to be used more than a very minimal amount for personal purposes. Such vehicles would include various heavy trucks, buses, police and fire vehicles, cranes, forklifts, tractors, and similar vehicles.

How do you keep the records you need? You must keep mileage records for any business travel you do. In fact, the IRS specifically asks you on your tax return whether you have written evidence of your auto expenses and is likely to deny your deduction if you don't have them.

At a minimum, you should keep a notebook in the car and jot down your odometer reading at the beginning and end of the year. In between, you should jot down your starting and stopping odometer reading for each business trip you take, as well as the reason for the trip. Most office supply stores carry notebooks designed for this purpose, in a size that's convenient for glove-box storage.

Save Money If you have a good memory, you can choose to merely update your mileage records every week or two, but we don't recommend it. It's too easy to forget those short trips to the bank or office supply store. Over the course of the year, those forgotten trips can really add up! It's better to get into the habit of jotting down the information at the beginning and end of every trip.

If you commute to a regular place of business, you'll also need to know the distance from your home to your workplace, as well as the number of commuting trips you made during the year, because the IRS specifically asks for this information.

At the end of the year, you'll need to compute the total number of miles you drove during the year and the total number of business miles. Then, you'll divide the number of business miles by the total number of miles driven. The answer you get represents your percentage of business use for the year. Save this number - you'll need it when you compute your deductible vehicle expenses!

Example Joyce King's initial odometer reading for the year was 23,456, and her ending reading was 33,500. So, her total mileage for the year was 10,044. During the year, she recorded a total of 34 business trips, with a total mileage of 800 business miles. So, her business usage of the vehicle was 800/10,044 = .0796, or about 8 percent.

You don't have to keep substantiating records for the business use of any vehicle that, by its very nature, is not likely to be used more than a very minimal amount for personal purposes. This includes various heavy trucks, buses, police and fire vehicles, cranes, forklifts, tractors, and similar vehicles. Deductions for such vehicles, however, must still be ordinary and necessary expenses of your business.