Come tax season, people are always asking me about mileage logs. A recent Tax Court case highlights the importance of keeping a log. In the case, a Mr. Keith Dunford lost $93,656 in business deductions for his business motorhome and two business cars due to lack of a business mileage log.
Receipts are Not Enough
Even though he had receipts for the expenses of his vehicles, his failure to keep mileage logs left the courts unable to determine the extent of the business use of his vehicles. The issues considered by the court included the ability of the Dunfords to deduct the depreciation and other expense of the motorhome and their business vehicles, whether the interest expense on the loan secured by their motorhome was a tax deduction, whether other business expenses claimed on the tax return were eligible tax deductions, whether the taxpayer was entitled to the NOL created by the business losses, and whether the taxpayer was subject to the accuracy-related penalty.
Make Sure You’re Claiming Auto Expenses the Right Way
While the court did not dispute the use of the vehicles for a bona fide business purpose, the lack of appropriate business records and mileage logs failed to substantiate the business use claimed on the tax return. In addition, the taxpayer claimed the mileage as well as the actual expenses on the vehicles. The courts ruled in favor of the IRS stating that the Dunfords had neither reasonable cause nor good faith to the positions presented on their returns.
Start Your Mileage Log Today!
This case supports the IRS position in future examinations that contemporaneous mileage logs and other supporting documentation is required to support the business deductions for use of vehicle. Keeping a log is easy, especially in this era of smart phones–you can find an app for that! So, business owners, if you have not kept a log, get on it. Tax time is coming and the longer you wait, the harder it is. If you haven’t kept a log, go back through your calendars, use MapQuest, Google maps, etc. to track your mileage for your trips. And make it your New Year’s resolution to create a good mileage log in 2014!
