In his escapades and adventures, James Bond may have used many tricks to escape death. However, even James Bond would have needed documentation to deduct the cost of his Aston Martin.
Court nixes most auto deductions:
In the summary judgment issued by a Tax Court Judge, he ruled that the owner of a Long Beach, California-based ` consulting/technical writing business didn’t meet the strict substantiation requirements to deduct vehicle expenses and depreciation for the Aston Martin he claimed to use for business.
Deduction demands driver documentation:
There are many lessons to learn from this tax court case. Since deductions related to an Aston Martin – the James Bond Car — were a key component, let’s start there.
The Tax Court noted that when you want to claim a deduction for auto-related business expenses in connection with your passenger vehicle, you must ” substantiate by adequate records or by sufficient evidence corroborating the taxpayer’s statement (1) the amount of the expense, (2) the time and place of the travel or use, and (3) the business purpose of the expense.”
Although the judge noted that a contemporaneous log is not required, I still suggest doing so. The reason why is spelled out in the case. The decision pointed out that “a taxpayer’s subsequent reconstruction of his or her expenses does require corroborative evidence with a high degree of probative value to support such a reconstruction to elevate that reconstruction to the same level of credibility as a contemporaneous record.”
This was also discussed in the court decision’s discussion of the taxpayer’s claim that he used the Aston Martin solely for business purposes. The Judge writes:
Although we believe the petitioner’s testimony that he used the Aston Martin for business purposes, we do not believe his testimony is sufficient to establish that he used it solely for business purposes. The petitioner provided no credible evidence to show that he used the Aston Martin strictly as a business vehicle, and we find it very unlikely that he did not use it for occasional personal excursions. Without more, the petitioner’s self-serving testimony does not meet the strict [Internal Revenue Code] substantiation requirements … for vehicles used in a trade or business. Accordingly, we sustain [IRS’] determination with respect to this issue.
The ruling also noted that Roy could have alternatively used the IRS-established standard mileage rate method to calculate his auto’s deductible business usage.
Ordinary business costs:
The decision in this case also addressed a couple of other essential business deduction claims, ordinary and necessary deductions, and a taxpayer’s responsibility in providing information to a paid tax preparer.
When claiming a business deduction, the expense must be ordinary and necessary. But there is no set standard for this requirement. It varies from profession to profession.
How to Document Your Vehicle Deductions for 20 Cents a Day
Step 1 -use a mileage tracker daily.
My recommendation is to use MILEIQ
MileIQ is a mileage-tracking app that can help you track business and personal miles. It can automatically log miles and calculate their value for taxes or reimbursements. MileIQ can also automatically track business miles from the start of a drive until it reaches its destination.
With the 2024 IRS Mileage Rate of 67 cents a mile, the app pays for itself daily in the first ½ mile captured.
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The three rules of deductions are: DOCUMENT, DOCUMENT, DOCUMENT.
Michael Tannery CPA CDFA® AIF® ● CEO
Registered Principal | Tannery & Company
The opinions expressed in this material are for general informational purposes only and are not a substitute for professional advice. Individual circumstances do vary. Independent Financial Group (IFG) does not give tax advice. IFG Registered Representatives (RR) do not provide tax advice while acting as a RR.
