The need to properly document travel deductions for tax purposes

02-06-2020Tax Information

You are generally entitled to deduct the cost of your travel expenses, within certain limits. But the tax law imposes strict substantiation requirements. Recently, the Tax Court denied a deduction because the taxpayer didn’t establish the requisite relationship between his business and the travel expenses. (Near, TC Memo 2020-10, 1/14/20)

Most self-employed individuals can deduct ordinary and necessary expenses incurred when traveling on business. This includes transportation costs back and forth from your business destination, as well as any business-related expenses at your business destination, such as lodging. The full amount is deductible if the trip is completely business-related.

To properly substantiate any expenses in accordance with IRS Publication 463, Travel, Entertainment, Gift and Car Expenses, you must have contemporaneous records that show:

  • The amount of the expense;
  • The time and place of the business activity; and
  • The business purpose and relationship.

For example, keep receipts from hotels when you stay overnight on business. Also, credit card statements can corroborate the receipts. As a last resort, the IRS says you may offer a written or oral statement containing specific information to help prove an element of the expense with other supporting evidence.

Substantiating business vehicle usage includes keeping a log the miles you drive with notation as to the purpose of the usage.  The IRS may look at your vehicle maintenance records (e.g. oil changes) to validate the information you provide.