Snyder and Associates


Tax Byte

Vehicle and Milage Deductions

It's hard to believe we are already 10 weeks into the year. While most New Year's resolutions may be losing steam, if you use your car for business or your job, we are suggesting perhaps a new one. If you don't already have good record keeping habits, develop them now for this year, and keep the habit.

We all know the IRS is looking for ways to increase revenue. One way they are doing so is by enforcing current laws, and the deductions for mileage and vehicle expenses is an easy target audit area. In the "good old days", the IRS would allow a reasonable deduction, based on the nature of the business, even without a written record. This is no longer the case. The new "old" rule: no written contemporaneous record, no deduction. Period. The audit appeals are making their way through the court system now and the courts are siding with the IRS.

The substantiation rules require a contemporaneous written record, which means it was created at the time the mileage was incurred (not later when the tax audit notice is received). It must document total mileage for the year, and for each trip, it must include the total mileage, the destination and the business purpose. The best record is a log book kept in your car with the good habit of using it.

Below is a link to a recent court case that discussed the issue. In this case, the taxpayer actually had a log book, but the Tax Court rejected it as unreliable and allowed no vehicle/mileage deduction, even though auto expense was reasonable for the type of business. The trial judge noted that "we may not in the absence of adequate substantiating records allow any deduction based on estimates of those expenses even though it appears that petitioners would be entitled to some deduction for mileage driven in connection with....their Schedule C businesses." No clear record, no deduction. Period.

The case has a number of legal technicalities specific to the taxpayers, but it is interesting reading. Even though it has a disclaimer that it does not set precedent for any other case, it does give a good commentary on the log book issue and is consistent with other cases. Here's a link if you're inclined to read it:

http://www.ustaxcourt.gov/InOpHistoric/MooreSumm.SUM.WPD.pdf

 

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