Why vehicle deductions draw scrutiny

Vehicle deductions are convenient to claim but can be easy to over- or understate. Auditors focus on mileage logs, percentage business use, and supporting receipts because those items directly determine the deductible amount. The IRS explains the two methods and documentation expectations in Publication 463 and its mileage-rate announcements (see sources below).

Quick checklist to prepare for questions

  • A contemporaneous mileage log or digital export showing date, odometer start/end or miles driven, business purpose, and destination. Apps that capture routes are acceptable if they export readable records.
  • Receipts for fuel, repairs, maintenance, insurance, registration, or lease payments (if using actual-expense method).
  • Vehicle purchase or lease agreement, and depreciation records if you claimed depreciation (Form 4562).
  • A short written summary that explains your record-keeping method for the year under review.

Step-by-step: how to respond to an IRS inquiry

  1. Read the audit letter carefully. Note the tax year(s) and the specific items the IRS wants (e.g., ‘‘mileage claimed on Schedule C’’).
  2. Pull the contemporaneous records first — mileage logs, calendar entries, and receipts. Prioritize documents that match dates and amounts the IRS highlighted.
  3. Create a concise cover letter for the auditor: identify the taxpayer, list the documents enclosed, and explain any calculation method (standard mileage vs actual expenses).
  4. If you used the standard mileage rate, provide your mileage log plus a short math worksheet showing how you calculated the deduction.
  5. If you used actual expenses, include receipts grouped by category (fuel, repairs, insurance) and a reconciliation showing the business-use percentage used to allocate expenses.
  6. Where records are missing, provide reasonable alternative evidence: credit-card statements showing fuel purchases, calendar entries, client invoices tied to specific trips, or odometer photos. Explain gaps honestly.
  7. Send the package by certified mail or upload via the IRS portal as instructed, and keep a copy of everything you send.

Documentation details by method

  • Standard mileage method: contemporaneous log or app export, odometer readings for the year (if available), and evidence you didn’t use the vehicle for certain deductions previously (e.g., depreciation).
  • Actual expense method: all receipts for vehicle-related costs plus a clear, documented business-use percentage. If you claimed depreciation, include the Form 4562 filed for the vehicle.

Common IRS questions and model answers

  • ‘‘How did you determine business miles?’’ — Answer with the log source, how you recorded trips (calendar, client appointment, app), and a one-line example that ties a trip in the log to a client meeting or delivery.
  • ‘‘Why is personal use excluded?’’ — Explain the specific record entries showing a trip’s business purpose and show how you calculated the business-use percentage.
  • ‘‘Why do receipts not match miles claimed?’’ — Explain different record sources (odometer vs receipts) and provide mitigating evidence (route app, third-party records).

Handling mixed personal and business use

Only the business portion is deductible. Calculate the business-use percentage and show how it was determined (mileage log entries or a sample month extrapolated, with explanation why sampling is reasonable). Where you switch methods (standard mileage one year, actual expenses another), be ready to explain the switch and show supporting records for each year.

Record retention guidance

Keep supporting records for at least three years after filing, which is the typical IRS statute of limitations. Keep them for six years if you omitted more than 25% of gross income for a year, and indefinitely if fraud is suspected. For specifics, refer to IRS recordkeeping guidance (links below).

When to involve a tax pro

  • If the auditor disallows a large deduction or proposes substantial tax and penalties, contact a CPA, enrolled agent, or tax attorney.
  • If you receive a summons or a notice that looks like a field audit, get professional help early — representation can reduce stress and improve outcomes.

Practical tips from practice

In my work with clients, the single most effective step is maintaining a contemporaneous log. Apps make this easy, but auditors still prefer records that show business purpose (client, job site, delivery). A short explanatory cover letter saves back-and-forth and often narrows the auditor’s questions.

Internal resources

  • For detailed examples of mileage documentation and formats, see FinHelp’s guide: “How to Document Business Mileage to Withstand an IRS Audit” (link).
  • To compare claiming methods and decide which to use, read “Business Use of Your Car: Mileage vs Actual Expenses” (link).
  • If you need help preparing supporting evidence and a persuasive package, see “Preparing a Persuasive Audit Response: Evidence That Matters” (link).

Authoritative sources

Professional disclaimer

This article is educational and does not substitute for personalized tax advice. For specific questions about your audit or unique facts, consult a licensed tax professional or attorney.