How Important is Proper Tracking of Miles, Meals & Expenses?

It should come as no surprise that it's VITALLY important to properly and completely track mileage, meals & expenses, or you risk having them thrown out by the IRS. Here are a couple of examples courtesy of the AIPB May 2022 General Ledger (Vol. 39, No. 5)

The case: R, a self-employed mortgage broker, filed a Schedule C. She owned rental properties and also filed a Schedule E. On both schedules she deducted vehicle and meal expenses. The IRS denied most of the expenses.

Held: Partly for the IRS, partly for the taxpayer. To support the Schedule C vehicle expenses, the taxpayer provided a log of trips in the vehicle based on a notebook where the taxpayer said she kept her travels. But the notebook was unavailable to the IRS or court.

In addition, the log was incomplete, lacking precise destinations, starting points and business purposes of the trips. The court disallowed all Schedule C vehicle deductions.

For Schedule E vehicle expenses, the taxpayer had a more detailed log because her rental house was being renovated and most of the trips were from the rental to Home Depot to purchase materials for the renovation. This made it easy to establish the exact mileage and purpose of the trips, and the court allowed those deductions.

For Schedule C meal expenses, the taxpayer said she often purchased meals for herself and her clients if she worked on their loan applications during meal times and offered a log, credit card statements and restaurant receipts.

But the log was not contemporaneous with the expenditures and lacked the business purpose and taxpayer’s relationship to the dining companions, so the log did not meet the requirements of §274, Disallowance of certain entertainment, etc., expenses. The meal deductions were denied. [Rau v. Comm., T.C. Summ. Op. 2022-4]

If you need help with your bookkeeping, accounting, business tracking and more, reach out! We can help. Schedule your free consultation to see what we can do for your business. Take the terror out of your taxes and the boredom out of your bookkeeping! It's what we do.