How to Deduct Automobile Expenses

The Internal Revenue Service frequently audits deductions for auto expenses, and the documentation requirements are fairly complex. This should not discourage you from taking all the deductions to which you are entitled, however, since we have had great success at defending auto expense deductions in IRS audits. What is important is to keep the necessary records — then you have nothing to fear.

The proof of your auto expense is straightforward. You need to document:

The above items are sufficient to claim the "standard mileage" deduction which is set at regular intervals by the IRS (51 cents per mile as of 1/1/2011). If you elect to us the "actual expense" method, you must also document:

There's a simple way to maintain all the necessary documentation:

Note: Business driving is defined as mileage between business locations. Unless you have a home office, driving to the first place of work is not deductible. If you are not self-employed have your employer require you to maintain an office-in-home as a condition of employment, and get a letter proving the requirement. Then on days when you legitimately work at home before or after going to the office or to a client, you can deduct the mileage from/to your home.

Lease or Buy

This is a complicated decision and depends on many of your personal factors — income bracket, miles driven per year, percentage of business use, frequency of getting a new vehicle, cost of the vehicle, etc. You may find the following link helpful in making your decision: http://www.leaseguide.com/lease03.htm.

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