In a recent tax court case, the taxpayer who is a self-employed nutritional supplement salesperson, deducted expenses for travel, vehicle, meals and entertainment allegedly related to his sales business. Even though the taxpayer kept a mileage record on his calendar, the record lacked specific and necessary information on how and why the mileage was related to business. The taxpayer supplied a spreadsheet to the court in support of his deducted meals. However, he admitted that many of his meals were eaten alone. The tax court concluded that the records and substantiation supplied were not reliable and could not be considered “adequate records” as required by the tax code.
The morale of the story…Document, document, document! Each claimed meal and mile must be directly related to or associated with an active trade or business or for the production of income. And specific documentation must be kept to substantiate the deduction.