The IRS can disallow deductions for travel expenses, including those for business car use, if you don’t keep adequate records. Notably, you’re required to keep a contemporaneous log or other similar record of your business trips. That doesn’t mean you have to record the information as soon as you arrive home, but you can’t wait until months have passed either.
In lieu of keeping track of actual expenses, you can use a standard mileage method based on the business miles traveled (you still must keep track of the dates, business reasons, and mileage for business-related trips). For 2016, the standard mileage rate is 54 cents per business mile (plus business-related tolls and parking fees).
Even though being forewarned is being forearmed, taxpayers continue to take shortcuts or try to reconstruct records after the fact.
New decision: A CPA deducted more than $22,000 under the 55-cents-per-mile standard mileage method for 2009. He claimed the trips were made to see prospective clients. But the IRS disallowed all but $400 of the deduction. At trial, the CPA conceded that he had overstated the deduction, yet still argued he was entitled to write off about $4,750.
However, the CPA didn’t have any contemporaneous records of his business travel. Instead, he provided a copy of a 2009 calendar and printouts of directions generated by MapQuest. The directions were prepared in December 2011—two years after the alleged travel occurred.
The MapQuest directions showed the distance between the CPA’s residence and the locations of the business destinations. He wrote a list of dates on each page of directions to signify that he traveled on those days to and from the particular location on that page of directions. These dates were the same as the dates circled on the calendar.
Stop sign: The Tax Court ruled that the CPA’s records weren’t adequate. It pointed to the large gap in time between the alleged travel and creation of the records. You can’t prepare records two years after business trips, no matter what technology you use. (Kilpatrick, TC Memo 2016-166, 8/29/16)