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What Records Must I Keep For Business Travel and Car/Truck Expenses?

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Question: What Records Must I Keep For Business Travel and Car/Truck Expenses?
Answer:

Business Travel and Car/Truck Expenses
If you want the IRS to accept your business records for car/truck expenses and business travel expenses, you must keep careful records. The IRS will not allow you to estimate these expenses, as you might be able to do with other business expenses. Your vehicle expenses and travel expenses must be:

  • Complete, including all information about the expense: date, amount, vendor, and what it was for.
  • Accurate, meaning you can't give a false amount or just estimate.
  • Timely, meaning that the information is collected and recorded at the time the expense was incurred, not later.

What are Adequate Records
In numerous Tax Court cases, the Court said that, in order to substantiate a business expense, the taxpayer must produce "adequate records" for that expense. The IRS says that adequate records must include:

  1. The amount of the expenditure,
  2. The amount of business use of the vehicle as a percentage of the total use,
  3. Time (the date of the expenditure or use), and
  4. The business purpose of the expenditure or use.

Timely Recording is Important
In addition to including all the details above, records must be timely. In one Tax Court case, the Court stated:

A record of the mileage made at or near the time of the automobile’s use that is supported by documentary evidence has a high degree of credibility.... To meet the adequate records requirement, the taxpayer must maintain an account book, diary, log, statement of expense, trip sheets, or similar record and documentary evidence that in combination are sufficient to establish each element of expenditure or use. An adequate record must be prepared or maintained in such manner that each recording of an element of an expenditure or use is made at or near the time of the expenditure or use. [M]ade at or near the time of the expenditure or use means [that] the elements of an expenditure or use are recorded at a time when, in relation to the use or making of an expenditure, the taxpayer has full present knowledge of each element of the expenditure or use.

The IRS on Timely Records:
The IRS says in Publication 463 you should:

record the elements of an expense or of a business use at or near the time of the expense or use and support it with sufficient documentary evidence. A timely-kept record has more value than a statement prepared later when generally there is a lack of accurate recall. You do not need to write down the elements of every expense on the day of the expense. If you maintain a log on a weekly basis that accounts for use during the week, the log is considered a timely-kept record.

There is a saying in the law that something not written down doesn't exist. In this case, if it is not written down AT THE TIME IT HAPPENS, it doesn't exist, for tax purposes. If you don't have a travel record or notebook in your car to write down business travel expenses, even if you can reconstruct them after the fact, they won't be satisfactory for the IRS.

While keeping good records may still not get your deduction approved by the IRS, your chances of getting these expenses approved is much higher with good records. Check with your tax adviser for more information on records for travel and vehicle use.

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