No Mileage Log, No Deduction

October 4, 2011Comments Off on No Mileage Log, No Deduction

In a court case involving an individual, the judge allowed $780 as a business deduction for auto use. The individual claimed $6,033 on his tax return, but he was missing that critical mileage log to prove his business use. They could have preserved the additional $5,253 in deductions by following a few simple rules.

The court had this to say about the auto deduction: (Ref #1)

Automobile mileage deductions are subject to the strict substantiation requirements of section 274(d). Accordingly, the court will not grant a deduction to the taxpayer who proves business use but fails the heightened substantiation requirements of section 274(d). Section 274(d) requires specific documentation for travel, entertainment, and listed property (such as the automobile).

To deduct expenses subject to section 274(d), the taxpayer must substantiate, by adequate records or sufficient evidence to corroborate the taxpayer’s own testimony, the amount spent (or mileage, if electing the mileage method), the time and place of use, and the business purpose.

In lieu of a contemporaneous log of auto use, the taxpayer may present corroborative evidence to support his or her reconstruction of the elements of use, but that corroborative evidence must have “a high degree of probative value to elevate such statement” to the level of credibility of a contemporaneous record.

The court had this to say about the standard mileage rate:

In lieu of substantiating the actual amount of any expenditure relating to the business use of a passenger automobile, a taxpayer may use a standard mileage rate as established by the IRS. The standard mileage rate is to be multiplied by the number of business miles traveled. The use of the standard mileage rate establishes only the amount deemed expended with respect to the business use of a passenger automobile. The taxpayer must still establish the business mileage, the time, and the business purpose of each use.

The court’s comments instructive. You need a mileage log, regardless of how you deduct your vehicle. No mileage log, no deductions. Also, the fact that the mileage rate is simply an alternative to expenses is instructive: you need the mileage log to find your business miles; then you multiply the business miles by the mileage rate to find your business deduction.

Three Month Sample to Reduce Recordkeeping Headaches

You might consider the three-month sample for the mileage log. (Ref #2) With this sample, you maintain your mileage log for three months of the taxable year and then use the three-month log to substantiate the business/investment use of your vehicle for the year. The IRS says you may use this three-month sample if you can demonstrate by other evidence (such as your appointment book) that your three-month selection is representative of your use for the taxable year. (Ref # 3) Finding three months in a row that represent your year should be walk-in-thepark

Remember, you need the three-month sample regardless of whether you use the mileage rate or the actual expense deduction method. If you use the mileage rate, you will need four odometer readings for the year:

  • odometer reading on January 1 of the current year
  • odometer reading at the beginning of the three-month test period
  • odometer reading at the end of the three-month test period
  • odometer reading on December 31 of the current year

Always keep your mileage on the same page or in the same electronic record that you record your appointments. Do not make extra work for yourself by creating a separate mileage log that duplicates your other information. Be efficient and effective in your record keeping; keep the mileage next to the cause of the mileage as noted in your calendar, daybook, Blackberry, or other record.

Planning tip for expenses: For vehicle expenses, you need documentary evidence, such as receipts, paid bills, and cancelled checks, to support expenditures of $75 or more. (Ref #4) Think in terms of proving what you bought (receipts) and how you paid for it (cancelled checks). You need to prove both to audit-proof your deductions.

Here are some easy steps to follow for tracking vehicle expenses:

  • Use Quicken or a similar software program to record expenses.
  • Charge gas, oil, and other vehicle expenses to a credit card.
  • Always get receipts that show what you purchased—even for amounts less than $75.
  • At the end of the month, attach the receipts to the credit card statement.
  • Allocate all credit card charges to the proper categories (e.g., personal, entertainment, vehicle expenses—or a more detailed breakdown, if you like). You will find that the fewer categories you use, the easier it is for you to keep your records.

1 Gary Lee Colvin v Commr., TC Memo 2007-157.
2 Reg. Section 1.274-5T(c)(3)(ii)(C), Example 1.
3 Reg. Section 1.274-5T(c)(3)(ii)(A).
4 Reg. Section 1.274-5(c)(2)(iii).

No Mileage log, no deduction
Rev Date May 10, 2010, drw

About author:

Darrel serves as the Executive Director of Darrel Whitehead CPAs, an accounting practice performing tax, accounting, and administrative services. Beginning his career at Arthur Andersen, Darrel moved on to a regional CPA Firm, Singer Lewak in business management developing expertise in taxation and managing the business affairs of high profile clients in the music and entertainment industries.

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