What information does the IRS require to substantiate deductible automobile expenses?

If driving is an essential part of your job, you may be qualified to deduct the costs on your federal income tax return. So if you're a financial planner on the go who visits clients across the city, you can deduct the mileage that you accumulate while you're driving on the job. You can also use the deduction for medical purposes, if you're an active member of the military, or while working with charitable organizations.

The rules are set by the Internal Revenue Service (IRS), which adjusts the deductible mileage rate for inflation each year. So if you qualify, get ready to document your travels as supporting evidence in the event your taxes are audited.

We've listed eight easy steps in this article that you can follow if you want to claim this tax deduction.

Key Takeaways

• The IRS allows taxpayers to claim deductions for the use of a vehicle.
• The standard mileage deduction requires you to log odometer readings from the beginning and end of a qualifying trip, along with its purpose and date.
• Taxpayers who don't want to log miles are able to claim vehicle expenses, such as lease payments, insurance, gas, and tolls.
• You can claim these expenses if you use your car for business, medical purposes, moving for active-duty military members, or if you work for a charitable organization.
• Keep clear and precise records if you claim the standard mileage deduction or all of your receipts if you want to claim vehicle expenses.

1. Make Sure You Qualify for Mileage Deduction

As noted above, there are certain conditions that qualify taxpayers to claim a deduction for the mileage used while driving their vehicles during each tax year. The most common reason for taking the mileage deduction is for travel from the office to a worksite or from the office to a second business-related location. You can also claim the deduction if you're using your vehicle to:

• Conduct business-related errands
• Take you to and from medical appointments if you take the deduction for medical expenses
• Move between posts if you're an active member of the military
• Do work with charitable organizations
  

2. Determine Your Method of Calculation

You can choose between two methods of accounting for the mileage deduction amount. The first is the standard mileage deduction, which requires you to track how much you drive during the tax year. If you're not inclined to do that, you may want to claim deductions for vehicle expenses during the course of running qualified activities.

The standard mileage deduction requires only that you maintain a log of qualifying mileage driven. The deduction for the 2022 tax year is:

• For business: 58.5 cents per mile, up 2.5 cents from 2021
• For medical or moving for qualified active-duty Armed Forces members: 18 cents per mile, up two cents from 2021
• For charitable organization services: 14 cents per mile, which remains the same for 2021

The deduction for vehicle expenses requires that you retain all receipts and other relevant documentation relating to the costs of driving.

If you choose to take the deduction for vehicle expenses, you can factor in depreciation, lease payments, registration expenses, oil and gas, repairs, tires, tolls, parking, insurance, and any other costs that are directly related to your vehicle. Remember, you can only claim these expenses if you qualify.

3. Record Your Odometer at Start of Tax Year

If you decide to take the standard mileage deduction, you'll have to report the total miles the vehicle was driven in the tax year. This figure is reported on Form 2106: Employee Business Expenses. Therefore, you must record the vehicle's odometer at the beginning and at the end of the tax year.

But what if you purchase a used vehicle? In this case, make sure you record the odometer reading from the first day it is deployed until the end of the tax year.

You can't claim the cost of your vehicle as an employee as an "unreimbursed employee travel expense as a miscellaneous itemized deduction" between December 2017 and January 2026.

4. Maintain a Driving Log (If Needed)

You must keep a log of the total miles driven if you choose to take the standard mileage deduction. The IRS is quite specific on this point:

• At the start of each trip, record the odometer reading and list the purpose, starting location, ending location, and date of the trip.
• At the conclusion of the trip, the final odometer must be recorded and then subtracted from the initial reading to find the total mileage for the trip.

The IRS does not care for ballpark figures, which means your mileage log must be maintained on a regular and consistent basis. So be precise.

5. Maintain Record of Receipts (If Needed)

If you choose the actual expense deduction, you don't need to maintain or record your mileage. Instead, keep copies of relevant receipts and documentation. Each document must include the date, dollar amount of the service or service purchased, and description of the product or service needed. And, of course, the expense must be incurred within the tax year for which you're making the claim.

6. Record Odometer at End of Tax Year

At the end of the tax year, you should record the ending odometer reading. This figure is used in conjunction with the odometer reading at the beginning of the year to calculate the total miles driven in the car for the year. The information, including what percentage of miles driven were for business purposes, is required on Form 2106.

7. Record Mileage on Tax Return

When completing your tax returns, list the total amount of miles driven on Form 2106, Line 12. This figure is calculated by the standard mileage rate for the year to determine the dollar deductible amount.

If you're using the actual expenses method, you'll need to organize the receipts of the expenses into groups including gasoline, oil, repairs, insurance, vehicle rentals, and depreciation.

8. Retain the Documentation

You must retain the documentation relating to a mileage deduction for at least three years. If the IRS wants to see your documentation to substantiate the mileage deduction, make sure you make a copy of the records and file a personal copy. To keep it all straight, create a new log for each tax year.

What Is the Federal Tax Deduction for Mileage?

The federal tax deduction for mileage is 58.5 cents per mile for business use, 18 cents per mile for medical purposes, or if you're claiming moving expenses as an active military member going to a new post, 14 cents per mile for charitable services.

Is It Better to Claim Mileage or Gas for Taxes?

Claiming mileage or gas for taxes depends entirely on your personal situation. If you choose to take the standard mileage, you can claim 58.5 cents per mile during 2022. If you want to claim gas, you must keep all your receipts. You can also claim other vehicle-related expenses, such as insurance, depreciation, lease payments, parking, toll, and repairs. Keep in mind, that you can't claim mileage and expenses at the same time—you must choose one.

What Is the Tax Deduction for Medical Mileage?

The tax deduction for medical mileage is 18 cents per mile, which is up 2 cents from the 2021 rate. The same rate applies to active duty military members who move to a new post.

What Is the Tax Deduction for Mileage When Volunteering?

For those who volunteer, the tax deduction for mileage is 14 cents per mile, which is the same rate from 2021.

The Bottom Line

Whether you choose to claim mileage or vehicle expenses depends entirely up to you. If you drive a lot for business, you may benefit from claiming the mileage otherwise vehicle expenses are the right way to go. Whatever you choose to do, make sure you have clear and concise documentation to back up your claims. Otherwise you'll have Uncle Sam knocking on your door asking for proof.

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