Keep that logbook. It’s not always enough to incur a deductible expense to earn a documentation. For travel, meals and entertainment, you have to be able to prove it under strict standards. If you fail to properly document the amount, time and place, and business purpose of travel expense, your deduction is lost.
A Minnesota man whose job managing construction projects required substantial travel claimed employee business expense deductions. The IRS disallowed the deductions, and the Tax Court got involved. Judge Marvel explains (my emphasis, citations omitted):
Substantiation by adequate records requires the taxpayer to maintain an account book, a diary, a log, a statement of expense, trip sheets, or a similar record prepared contemporaneously with the use or expenditure and documentary evidence (e.g., receipts or bills) of certain expenditures. A log that is kept on a weekly basis is considered contemporaneous for this purpose.
The taxpayer, A Mr. Ressen, recorded business miles and kept a calendar showing his trips, and that carried the day:
With respect to the portion of the disallowed deduction attributable to their claimed use of the 2007 and 2008 Chevys, petitioners introduced copies of the calendar in which Mr. Ressen contemporaneously recorded his weekly mileage as an employee of ICS as well as some information regarding where he was working at various times. Petitioners also introduced copies of the pages in the logbook on which he contemporaneously recorded the beginning and ending miles for the 2007 and 2008 Chevys. Considering the facts and circumstances of Mr. Ressen’s employment arrangement with ICS and his business use of the 2007 and 2008 Chevys we conclude that the calendar is a credible, adequate record of the amount of the business use of the property, the dates of such use, and the business purpose of such use, and the logbook pages are an adequate record of the total use of the property.
It’s odd that the IRS disallowed the deduction and then litigated it. They apparently were trying to hold the taxpayer to some platonic ideal of a log book. The Tax Court was willing to combine the log book with the calendar to determine the time, place and business purpose of the trips — a sensible result.
The moral: Keep that mileage log, or use one of the smart-phone apps created for this purpose, and document your business purpose. Keep that calendar, too. It made the difference for our Minnesotan.
Cite: Ressen, T.C. Summ. Op. 2015-32.
William Perez, Taxes When Hiring Household Help.
Robert Wood, What To Do When IRS Agents Call On You. “Talking to the IRS without a representative is often a mistake.”
Russ Fox, Of Deadlines and Taxes:
This definitely wasn’t the worst Tax Season I’ve gone through, but it was far from the best. For taxpayers, this likely was one of the worst. Unfortunately, I don’t see any improvements on the horizon. The light I see is the oncoming train not the end of the tunnel.
TaxProf, The IRS Scandal, Day 713
Greg Mankiw, Why I favor estate tax repeal. “The estate tax unfairly punishes frugality, undermines economic growth, reduces real wages, and raises little, if any, federal revenue. There are no principles of good tax policy that support this tax…”
Martin Sullivan, As Governor, Jeb Bush Catered Tax Cuts to the Wealthy (Tax Analysts Blog). The formulation “tax cuts for the wealthy” should disappear. The loot and pillage community can call almost any tax cut a “tax cut for the wealthy” simply because the wealthy pay almost all the taxes.
When you consider government benefits, the rich guy pretty much covers the whole thing:
For your penance, say three “Our Commissioners” and three “Hail Lois.” Santa Clara Co. Priest Indicted on Bank Fraud, Tax Evasion.