How to Report a Car Allowance

Some businesses allow employees to have a car allowance or to pay for the cost of using their own vehicle. Companies that do this usually cover gas, insurance, and repairs on the vehicle being used. You will need to report this allowance on your taxes for the government and can even receive a deduction in some cases. You will need to keep accurate records and copies of all receipts for all the money spent from your car allowance in order to file taxes properly.

• 1

  Determine how much it costs to run your car when using it for business purposes. Figure in the cost of insurance, gas, basic maintenance such as oil changes, the cost of special licenses, tires, and other repairs

• 2

  Create a log or record of all the expenses in written statement form. Supply evidence that this log is accurate by presenting receipts and work orders for repairs.

• 3

  Complete a Form W-2. If your employer fully reimburses you for all expenses with an account plan then you will not need to fill out this form.

• 4

  Fill out and complete a Form 2106. You will need to have your expenses itemized for deduction on a Form 1040 Schedule A as well.

• 5

  Turn in your completed forms either through the Internet to the IRS or to your local tax service.