Wife got audited for mileage deductions. If she only got gas paid for she can write off mileage and wear and tear correct?

[richardthehondag]

She had a gas card but they didn't reimburse mileage or wear and tear. She put an insane amount of mileage on the car and drove it into the ground because of her job. What deductions can she claim? IRS claims she could only claim $400 for a window replacement.

[Opus 17]

You have two options with regard to business use of a personal vehicle.

1. Standard mileage rate.  The standard mileage rate includes allowances for gas, insurance, wear and tear, repairs, and all other car expenses.  If you take the standard mileage rate, that's all you get, you can't also deduct for a window repair, for example.  You also have to subtract any tax-free reimbursement (such as company paid gas).  For example, if she drove 10,000 miles, and received $2000 in free gas, her deduction would be (10000 miles x 54 cents per mile minus $2000) equals $3400.  To do this, she needs accurate records of her mileage -- date, business purpose and mileage of every trip, start and end odometer reading for the year, plus records of all the gas she bought with company money.  This needs to be a record made at the time of the travel, not reconstructed later.  There are log books and apps that will help track mileage and gas purchases.

2. Actual expense method.  Start with complete and accurate records of all the business trips, as above.  Also, complete and accurate records of all the car expenses -- gas, oil changes and other maintenance, tires, repairs, insurance, and auto loan interest (but not the part of the payment that is principle).  You can also add in depreciation (wear and tear). Then, add up the total miles driven for the year, the total business miles, get the percentage, and deduct the percent of expenses equal to the percent of business travel.  And again, you have to subtract out the free gas from the total expense deduction.

The standard mileage method is easier, of course, and almost always more generous, although that can vary depending on the type of vehicle and the expenses involved.

If you are being denied, my guess is you don't have accurate records of the milage or expenses to the IRS satisfaction.  They might allow a window repair if it obviously broke on a work trip, but they may not allow the general work travel deductions if you can't prove the actual mileage and that it was for work trips.  (Or if you do have the proof, you did not submit it to the IRS in a form they could understand.)

These rules are covered in chapter 4 here https://www.irs.gov/uac/about-publication-463

[Opus 17]

Tax deductions are a matter of legislative grace and the IRS is not required to allow any deduction that you can't prove to their satisfaction.

[Opus 17]

Also note, if you want to use the standard mileage rate, you must use it in the first year that the car is used for business.  The decision must be made by the filing deadline for that year's taxes.  If you use the standard rate in the first year, you can use the standard rate or the actual expense method in future years, although you will need to make adjustments to the depreciation calculation.  If you used the actual expense method in the first year you used the vehicle in business, then you must always use the actual expense method in future years.