IRS mileage deduction substantiation

Many taxpayers claim a mileage deduction on either their individual or corporate income tax returns for business miles driven using personal vehicles.  This tax deduction can be quite substantial and can often significantly lower income tax liability at both the Federal and State levels.  In fact I have several clients who would have to pay between seven and ten thousand dollars of additional income taxes per tax year if their mileage deductions were disallowed!

The IRS specifically requires that taxpayers retain very specific documentation to substantiate business use of a personal vehicle under Code Section 274.  A deduction is not allowed unless the taxpayer properly documents:

1. The amount of the expense (the number of miles driven)
2. The time and place of travel
3. The business purpose of the travel

This issue has been taken to Tax Court many times and the IRS has been very successful in disallowing travel deductions that do not have complete and proper substantiation. 

Royster v Commissioner, TC Memo 2010-16, is a good example of this and is well worth your time if you are interested in this topic. 

The morale of the story is that taxpayers need to keep good records and proper substantiation of deductions claimed!  Taxpayers need to pay attention to their bookkeeping and accounting or they need to partner with a firm that can assist them with these necessary tasks.

SBS CPA group has a large number of clients in Fort Wayne, the greater Fort Wayne metro area, and northeastern Indiana.  We specialize in business tax returns and we also handle a large number of individual tax returns; especially complicated personal tax returns.  As such we have a large number of clients who benefit by deducting legitimate business travel expenses.

We have a large number of individual clients who work in sales.  In many cases they are treated as employees; however, they are required to pay their own travel expenses.  These travel expenses are often deducted by the individual on Schedule A of their 1040.  A good example of this would be a sales person who worked selling phone book advertising in the Fort Wayne area.  This person might drive extensively in Fort Wayne and the surrounding area; in fact they might spend a lot of time in Indiana and even in other nearby states depending on the exact territory they cover.   They might get a W-2 from their employer and be responsible for paying their own travel expenses.  It is absolutely critical that this Fort Wayne resident maintain a complete and accurate mileage log in order to defend their business mileage deduction! 

Mike Sylvester, CPA/ABV “accredited in business valuation”