Track the vehicle's basic facts
Write down the make, model, year, date placed in service for the business, purchase price or lease terms, and odometer reading on that date. Keep the purchase agreement or lease. These details drive depreciation or lease calculations that your preparer will need.
If the vehicle was previously used for personal driving and later added to the business, the date of conversion matters. Note it.
Costs to collect all year
Fuel, oil changes, tires, repairs, registration, insurance, car washes, parking and tolls are typical running costs. Pay for them with a business card or save the receipts so the totals can be found easily. A single category in your books for each type makes reports clearer.
Loan interest on the vehicle can matter too, but the principal part of loan payments is not a running cost. Keep the lender statements with the annual interest total.
Business-use percentage is the key number
The percentage is business miles divided by total miles. Everything else depends on it. You still need a log of business trips plus odometer photos from the first and last day of the year. Without a log, the percentage is an unsupported guess.
If the percentage changes through the year, for example when you take on a new route, tell your preparer and show the log.
Keep the paperwork organized
Create a folder per vehicle per year. Put in the log, the year-end odometer photo, a list of running cost totals by category, the insurance declarations page, and the registration. If you have two vehicles, do not mix them.
A simple spreadsheet with months across the top and cost categories down the side makes the annual totals trivial to add up, and it will match your accounting reports.
Special situations to raise with a preparer
Heavy vehicles, vehicles bought late in the year, trade-ins, sales and leases with unusual terms each have special treatment. The same goes for vehicles used by employees. Do not decide the tax treatment in the books. Record the facts and the documents, and let the preparer choose.
When you sell or trade the vehicle, keep the bill of sale and note the date, because that affects the final year's calculation.
Check the books against the log each quarter
At each quarter end, add up fuel and repair totals, divide the log's business miles by total miles, and see whether the results look reasonable compared with last quarter. A sudden jump in repairs or a drop in business percentage is worth a note explaining what happened.
Quarterly checks catch missing months in the log while you can still reconstruct them accurately. They also keep your records ready when your preparer calls in the spring.
Common questions
Can I switch between methods each year?
There are restrictions that depend on the first year the vehicle was used and the method chosen. Check with your preparer before the first year.
Is a leased vehicle treated the same way?
Not exactly. Lease payments and any inclusion amounts follow their own rules. Provide the lease agreement and payment history to your preparer.
This guide is general information, not tax, legal or accounting advice. Rules, fees and due dates change; check with the IRS, the NJ Division of Taxation or a licensed professional for your situation.