Registered Tax Return Preparer RTRP Practice Exam 2025 - Free Tax Return Preparation Practice Questions and Study Guide

When claiming a deduction for a vehicle used for business purposes, it is essential to document the personal use percentage of the vehicle. This is crucial because the deduction must only relate to the business-related use of the vehicle. To accurately determine the deductible expenses, taxpayers must differentiate between personal and business miles driven.

The IRS allows for two methods of calculating vehicle deductions: the standard mileage rate and the actual expense method. Both methods require an accurate record of business versus personal usage. By documenting the personal use percentage, taxpayers ensure compliance with IRS regulations and provide a clear basis for their deduction calculations. This documentation supports the legitimacy of the business deduction claimed on their tax return.

While options like the initial purchase price and insurance premiums might seem relevant, they do not directly address the allocation of business versus personal use, which is the key factor in determining the allowable deduction. Similarly, the color of the vehicle has no bearing on the business use calculation and is irrelevant to the deduction process.