Fleet Management News & Business Info | Commercial Carrier Journal
Issue link: http://read.dmtmag.com/i/442406
F O R T U N AT E LY, T H E R E I S A L I T T L E - K N O W N L AW T H AT A L L O W S F O R T H E E S T I M AT I O N O F E X P E N S E S O R RE-CONSTRUCTION O F R E C O R D S . . . " " Let's say that the only expense item you add is 8,000 business miles. If you are only in a 15 percent bracket, the additional tax savings to you will be roughly $1,300 (this is aer taking into account your marginal tax rate of 15 percent plus self- employment tax at an effective rate of 13.5 percent). is is "found money" to which you are entitled. So now that we've got your interest, let's shi gears for a moment and talk about… Records, or the Lack Thereof As you might imagine, the IRS wants you to maintain records for the deductions you are claiming on your tax returns, especially business deductions. is is certainly a reasonable request. If you review virtually any IRS publication or set of instructions, it will tell you exactly what is "required" in order to take any given deduction. But let me ask you a question: What if your expense records were destroyed in a fire? or destroyed or disposed of by a spouse or significant other? Or what if, for example, you had been one of several hundred or more owner-operators living in New Orleans, LA, during the last week of August, 2005, when Hurricane Katrina wiped out countless homes and businesses, including those of these professional drivers? Fortunately, there is a little-known law that allows for the estimation of expenses or re- construction of records using the best method available, if the actual records are missing. is special rule of law is known as the "Cohen Rule" aptly named aer an audit case involving none other than famed entertainer and songwriter, George M. Cohen. It seems that Mr. Cohen's income tax returns were audited in the 1940s for a year during which he had traveled with his show for more than 30 weeks during the year. Unfortunately, Mr. Cohen had not maintained records to back up the expenses he claimed on his tax return, so the IRS examiner disallowed most of his business expenses out of hand. Fortunately, the story doesn't end there. He appealed the IRS' disallowance, and eventually the U.S. Tax Court found in his favor. us, his estimated expenses were all allowed and the "Cohen Rule" has held up since then. We have cited it in numerous cases where original records are found to be lacking or even non- existent. What does this mean for owner-operators everywhere? It means that if you can reasonably estimate valid expenses for which you have no original records, it is acceptable for you to claim a deduction. Having the freedom to deduct expenses based upon reasonable reconstruction can likewise cut your income tax bill by hundreds, if not thousands of dollars every year. E. Dennis Bridges is a certified public accountant and is the executive director of eTruckerTax. He can be contacted at info@etruckertax.com Vo l . 9 , N o . 1 TRUCKSTOP.COM 17