All business expenses must be properly substantiated in order to be deductible for income tax purposes, but certain expenses, including travel, meals, entertainment and vehicle expenses are subject to the special substantiation requirements under Code Section 274 (d). These substantiation requirements include “adequate records” of the amount, time, place and business purpose of the expense.
Vehicle mileage is typically substantiated by mileage logs which record the date of the travel, the beginning and ending odometer readings, the name of the destination and business reason for the trip. Such log entries are supposed to be created at the time of travel, or shortly thereafter (contemporaneously) while the details of the travel are still fresh.
Quite a few cases have been heard by the Tax Court which concern mileage expenses. In almost every case, the mileage logs were deemed to be inadequate substantiation and the auto expense deduction was denied because 1) the mileage logs did not include all of the required details (especially notations regarding the business purpose of the trip), and/or 2) the logs did not appear to be prepared contemporaneously. The courts also investigated toll tickets, gas tickets, credit card receipts and other documents to try to correlate the travel shown in the logs with actual business expenses paid, in order to prove that the trip(s) were actually taken as indicated in the log.
If anyone in your company incurs any travel, meals, entertainment or vehicle expenses, please make sure all of the substantiation requirements of Code Section 274 (d) are strictly followed in order to preserve your deduction. Please note: Due to the changes under the Tax Cuts and Job Act of 2018, these deductions are no longer available to individuals as employee business expenses on Schedule A of their income tax returns.
If you have any questions or need any help in determining how to best follow these substantiation rules, please contact our office at 251-476-7685.