John Bullis: Documenting vehicle expenses
July 28, 2014
David H. Garza had vehicle expenses disallowed because he did not keep adequate records and evidence as Section 274(d) and the related regulations require.
He did not record the amount, time and business purpose of each business use of his truck. He worked as an outside sales representative for Time Warner Cable.
He claimed the vehicle expenses as employee business expenses on form 1040, Schedule A, Itemized Deductions. Time Warner Cable policy did not provide him with any reimbursement for his business driving.
At trial, he conceded that some of the 40,171 miles traveled were not a valid deduction because some of the miles were for commuting.
The court found he did occasionally enter mileage, usually at the beginning and end of a month, but he did not show how much was personal miles and how much was business miles. The court believed his testimony that he traveled regularly in relation to his employment, but the strict substantiation requirements of Section 274(d) were not met.
Mr. Garza later said, “…it was just too much to do…” so he did not record all of the details of his business driving.
Mr. Garza also had claimed expenses for meals and entertainment which he conceded at trial were not allowable expenses.
If you keep a calendar with notations of the business purpose and miles driven each day for business, it will come closer to meeting the strict requirements of the tax law. Some clients measure the business miles to and from regular places they go.
It is important to keep the business driving records with especially the business connection or reason for the trip. Keeping the records as time goes by is the correct action.
I remember the audit of a client that was an attorney. I explained to the IRS auditor that we only claimed 60 percent of his vehicle driving as business. Since the other items he checked were all verified as OK, the auditor did not work to verify the business driving. The audit was concluded with a “no change” report. Our client said “John, you said I had to keep detailed mileage records but the IRS audit was finished with ‘no change’ so you were wrong about making me keep detailed records…”.
Keep good records on business meals and entertainment expenses. It is the basic “who, (the credit card receipt will show when and where) but especially how business related.
Did you hear? “In life one has a choice to take one of two paths: to wait for some special day — or to celebrate each special day,” by Rasheed Ogunlaru
John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.