What Does it Take to Substantiate Vehicle Expenses?

What Does it Take to Substantiate Vehicle Expenses?

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Author: Christopher R. Budd | Tax Supervisor

Many taxpayers have a vehicle that is used, at least partially, for business purposes.  Claiming the related expense is an important tax deduction.  Taxpayers should be aware that the IRS looks closely at these expenses and the supporting documentation is an important part of substantiation.

In a recent Tax Court case (David H. Garza, TC Memo 2014-121) the taxpayer was disallowed $20,000 in vehicle expenses, solely for mileage reimbursement based on the standard mileage rate. To keep track of the expenses, the taxpayer kept records in a calendar planner book by documenting his truck’s odometer readings at the beginning and end of each month, but no other information related to vehicle usage was included. Because of this the Tax Court agreed with the IRS that the taxpayer failed to follow the strict substantial requirements for unreimbursed travel expenses (IRC Sec. 274(d)).

This begs the question what does it take to substantiate unreimbursed vehicle expenses? Under the Code the taxpayer is allowed a deduction for unreimbursed vehicle expenses if the taxpayer can substantiate by adequate record or sufficient evidence the (1) amount of expenditure, (2) time and place of use, (3) business purpose and (4) business relationship. To do this the taxpayer must maintain an account book, diary, or similar record; expense reports; or other corroborative evidence and documentary evidence including receipts or paid bills.

Providing documentation for actual expenses paid is relatively easy. This can be substantiated by providing an invoice or bill and noting the business purpose for the expense. Business miles, however, require much more documentation. Proof generally is made by substantiating the dates, location, miles and business purpose. This information should be maintained regularly in an account book mentioned above.

Due to the lack of information/detail with the taxpayer’s records this was the main cause for denial of the deduction in the case. To avoid disallowance of vehicle expense deductions it is strongly recommended for taxpayers to maintain adequate records as outlined above, at least on a weekly basis.

Questions on this topic? Contact your Keiter representative or 804.747.0000 | information@keitercpa.com

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About the Author

Keiter CPAs is a certified public accounting firm serving the audittax, accounting and consulting needs of businesses and their owners located in Richmond and across Virginia. We focus on serving emerging growth businesses and companies in the financial servicesconstructionreal estatemanufacturingretail & distribution industries and nonprofits. We also provide business valuations and forensic accounting servicesfamily office services, and inbound international services.

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The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.


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