Tax Audit Tips for Entertainment and Vehicle Deductions

June 14th, 2016 at 5:53 PM

IRS audit!  Scary thought? How will your records hold up? The records tell all. No documentation, no deductions–its that simple.

Don’t expect any mercy from the IRS–its not part of the IRS Code.

Recent IRS Case

Mr. Jones was employed as a sales representative–the court was looking at his auto expenses of $15,000+ and $2,500 in entertainment expenses. Unfortunately, Mr. Jones did not fare very well due to the following:

• he did not keep his records for his vehicle use on a contemporaneous basis ( within a week)
• he did not have any documentation or even hand written notes of any type, in his quest for a paperless audit
• he had mismatches in his records that he recreated 2 years after the fact
• he claimed excessive business miles on days when he was in flight training for his private airplane
• he claimed over 48,00 business miles which the court deemed unlikely, based upon his business activities

If Mr. Jones would have kept a 3 month log to prove his business use tied into his appointments, used a credit card for tracking expenditures, and maintained proper documentation for his entertainment expenses, he would have eliminated this disaster.

With today’s GPS tools for your vehicle or your smartphone, you can document this valuable deduction and meet the sometimes difficult contemporaneous requirement. I have a few recommendations that I provide my clients upon request.

I have a white paper on the additional documentation required for vehicle, travel. entertainment, and certain other expenses. If this documentation is not adhered to, these expenses are in jeopardy, if examined by the IRS.