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Tax Court Puts Up Roadblock to Travel Deduction

Travel Expenses approved stamp

If you incur unreimbursed expenses while traveling away from home on business, you are generally entitled to deduct the cost of your travel expenses, within certain limits. But the tax law imposes strict substantiation requirements. In a new case, Near, TC Memo 2020-10, 1/14/20, the Tax Court denied a deduction because the taxpayer didn’t establish the requisite relationship between his business and the travel expenses.

Background: Generally, if you’re self-employed, you 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.

However, the IRS often challenges deductions for travel expenses that are not properly substantiated. Therefore, it’s important to maintain records that show

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

Note that the records must be “adequate.” According to IRS Publication 463 (Travel, Entertainment, Gift and Car Expenses), evidence is adequate if it shows the amount, date, place and main character of the expense. 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.

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