This recent tax court case nixing the business mileage deduction for a taxpayer illustrates the importance of documenting your business expenses.
Theron E Johnson, Petitioner v. Commissioner of Internal Revenue, Respondent T.C. Memo, 2020-79, 6/8.2020 is the case of a rancher in Colorado who traveled between his farm and ranch, using a recently purchased truck for which he claimed business travel expenses and used Section 179 first year expensing. The travel consisted of legitimate business purposes as well as personal business when he took his kids hunting. He kept a log and recorded his mileage; however, he did not segregate business from the personal miles. And key to the case, he did not document the purpose of his business travel.
The burden of proof is on the taxpayer, and since Mr. Johnson could not substantiate his expenses, the tax court disallowed all of the business mileage deduction as well as the 179 expensing. In order to take Section 179, business use must exceed 50% of total mileage for each year the vehicle is depreciated. As a result, it had to be added back into his tax return as ordinary income (ouch).
The lesson in all this is twofold. 1. Business mileage deductions are low lying fruit for the IRS, and they were just emboldened to continue audits for this deduction. 2. Document, in some permanent written form, mileage for each trip for each vehicle used for business, Jan 1 and Dec 31 odometer readings, time and place of the travel, purpose of the trip, and whom you met with, if a meeting occurred.
One final note. Travel is a perfectly legitimate, commonly used business deduction. Every business should avail themselves of this valuable tax saving provision. Just be sure to adhere to IRS record keeping requirements.