Substantiating a vehicle (1)
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University of Nairobi *
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AAM3691
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Information Systems
Date
Nov 24, 2024
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docx
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Uploaded by martinmungai
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Substantiation Requirements
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Substantiation Requirements
Proving whether or not a vehicle is used in the trade can be important for tax purposes as
this affects the tax-allowable cost of the vehicle. Taxpayers must have documentation on hand
demonstrating their business car expenses under IRC § 274(d) (Frankel & Tan, 2021). To justify
this percentage, the taxpayer must report the total miles driven and the business mileage
amount. That means they need to jot down the schedules, the destinations, and the goals of their
business trips. In order to show that costs such as gas, repairs, and insurance are part of the
business-related activity, you will need receipts for these expenses, too.
The common ways to figure out corporate car expenses are the standard mileage rate and
actual cost method. Using the standard mileage rate method of IRC Sec.1.274 - 1(Oei & Ring,
2020), taxpayers could determine deductible expenses by applying predefined rates to the
number of miles driven for business purposes. They will need to document their travels in detail
with a mileage log to prove without a shadow of a doubt which trips were business-
related. Alternatively, to use what is essentially the right way, you would need to track out-of-
pocket costs for your genuine costs of owning an automobile, such as petrol plus insurance plus
repairs plus depreciation. These expenses need to be justified in order for them to qualify
according to tax regulations, and therefore, supporting documentation (invoices and receipts)
should be stored.
I recommend using the "MileIQ" app to complete the substantiation criteria effectively. A
user-friendly mileage monitoring program called MileIQ automatically records and classifies
your drives according to whether they were for work or personal purposes. This is a service in
itself that provides complete reports including all critical information like travel details (date and
time of departure and arrival), journey distance, and purposes of travel and meets/exceeds
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Internal Revenue Service (IRS) standards for tax records. Visit [https: //www.mileiq.com/ ] to
access MileIQ. For any small-business owner looking to make sure they manage and account for
business travel expenses, MileIQ is an invaluable tool that makes tracking your miles easy and
helps you avoid tedious IRS calculations needed to be compliant come tax time.
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References
Frankel, M., & Tan, J. (2021). Strategies and Evidence for Deduction of Business Expenses
Under Internal Revenue Code Section 168 (K), 179, and 274.
Accounting &
Taxation
,
13
(1), 75-96.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3902134
Oei, S. Y., & Ring, D. M. (2020). The Importance of Qualitative Research Approaches to Gig
Economy Taxation.
Beyond the Algorithm: Qualitative Insights for Gig Work
Regulation
,
1
, 82.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3513601