A Tax Court case this year drives home the point that there are no shortcuts or bypasses for people wanting to take deductions for using a car for business. The taxpayers who went to court reached one dead end after another in their quest for write-offs, but the case provides a roadmap for anyone looking to navigate the path (yes, I could go on with this…but I won’t) of tax-deductible business travel.
James Clement Powell and Lucy H. Powell went to court after the IRS denied $24,253 in vehicle expense deductions taken by their S Corp., WPL, Inc.
While Mr. Powell kept a mileage log, the court noted, among other things, that
–many of the mileage log entries didn’t list a destination,
–mileage totals sometimes differed for two trips to the same destination,
–some entries listed only estimated or rounded mileage totals, and
–in some cases a month’s worth of trips to a location were summarized in one mileage entry.
The court said that only the daily entries that listed the date of a trip, the destination, the purpose of the trip, and the exact mileage driven could meet the substantiation requirements for deducting business mileage. Entries that looked like estimates or that didn’t include either actual destinations or the purpose of the trip wouldn’t qualify.
Bottom line: The court disallowed $17,110 of deductions, leaving the Powells liable for back taxes plus interest and penalties.
For other taxpayers, the message is clear. The best way to prove and defend deductions for legitimate business travel is to keep a daily mileage log of your business trips. Record the date, your beginning odometer reading, where you are going and the business purpose, and your ending odometer reading. The difference between the two odometer numbers is your business mileage for that trip or that day; at the end of the month, quarter or year you can tally up your deductible business mileage.
You can find the whole story of the Powells by searching the internet for T.C. Memo 2016-111.