Substantiating Deductions: Make Sure You Keep Detailed Records

January 5, 2011

A recent tax ruling in which a taxpayer was denied a tax deduction is a good primer and reminder as to the requirements needed to substantiate auto deductions. If you have material auto expenses – it is worth taking a look at the ruling.

In this case, the taxpayer was employed as a University professor and also had a property management and real estate brokerage business. The court ruled that he was not entitled to a deduction for car and truck expenses that he claimed on a Schedule C, Profit or Loss from Business.

The taxpayer claimed that the car and truck expenses arose from his real estate brokerage activity. For back up, he only provided a calendar on which he wrote the destination to which he drove and the number of miles driven as documentation of these expenses. The calendar was an insufficient record as a mileage log because the destination descriptions were vague and generic in nature, no client identification was included, and no business purpose for the miles driven was provided. Further, the taxpayer failed to offer any other corroborative evidence sufficient to establish that he met the stringent substantiation requirements to document the nature and amount of expenses related to the use of listed property used as a means of transportation.

As is clear from the ruling, accurate and detailed records are a must.

For more information, contact your Perelson Weiner partner.

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