Car Expenses - Write Them Off
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A few closely related topics & pages From Bob Parrish CPA PC: Car - law requirements for recordkeeping
~ Car Defense of Deductions - IRS Interpretation
~ Car Expenses - Temporary Locations (multiple)
Client
Letter - What this idea is about From Bob Parrish CPA PC
| Poor Joe was never slow Always fast and on the go Never did he note the miles he drove So when tax auditor saw poor Joe The Auditor Got his Dough |
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Plain English Analysis What it does, Why it works - The Answer, Alternatives From
Bob Parrish CPA PCCar Expense
| If you want to use the standard mileage rate for a car, you must choose to use it in the FIRST YEAR the car is available for use in your business. Then in later years you can choose to use the standard mileage rate or actual expenses. If you choose to use the standard mileage method, you CANNOT deduct actual car expenses. These include depreciation, maintenance and repairs, gasoline (including taxes), oil, insurance, and vehicle registration. You also cannot claim the section 179 deduction if you use the standard mileage method. If you change to the actual expenses method in a later year, but before your car is considered fully depreciated, you have to estimate the remaining useful life of the car and use straight line depreciation. NOTE. In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls. Parking fees that you pay to park your car at your place of work are nondeductible commuting expenses. |
| Depreciation | |||
|---|---|---|---|
| Year(s) | Rate per Mile | ||
| 1994 - 1998 | $ .12 | ||
| 1992 - 1993 | .11 1/2 | ||
| 1989 - 1991 | .11 | ||
| 1988 | .10 1/2 | ||
| 1987 | .10 | ||
| 1986 | .09 | ||
| 1983 - 1985 | .08 | ||
| 1982 | .07 1/2 | ||
| 1980 - 1981 | .07 |
Depreciation adjustment when you used the standard mileage rate. If you used the standard mileage rate for the business use of your car, depreciation was included in that rate. The rate of depreciation that was allowed in the standard mileage rate is shown in the chart that follows. You must reduce the basis of your car (but not below zero) by the amount of this depreciation.
These rates do not apply for any year in which the actual expenses method was used.
For tax years before 1990, the depreciation rates apply to the first 15,000 miles. For tax years after 1989, the depreciation rates apply to all business miles
Instead of keeping track of actual expenses, taxpayers may use the standard mileage rate set by the IRS.
The standard mileage rate for years 1995 to the present is as follows:
|
Year |
Rate per Mile |
|
1995 |
30.0 cents |
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1996 |
31.0 cents |
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1997 |
31.5 cents |
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1998 |
32.5 cents |
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1999 |
31.0 cents |
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A deduction computed using the standard mileage rate for business miles is in lieu of deducting operating and fixed costs of the automobile. Operating and fixed costs include depreciation, maintenance and repairs, tires, gas, oil, insurance, and registration fees. Not included in the standard mileage rate, and thus deductible as separate items, are parking fees, tolls, interest relating to the purchase of the automobile, and state and local taxes to the extent they are allowable deductions.
Rev. Proc. 98-63, §§5.03, 5.04. Interest is nondeductible personal interest under §163(h)(2)(A) when it is paid on debt allocable to a trade or business (other than the trade or business of performing services as an employee). In addition, §164 provides that state and local taxes that are paid in connection with an acquisition or disposition of property are treated as part of the cost of the acquired property or as a reduction in the amount realized on the property's disposition.
In order to use the standard mileage rate, a taxpayer must choose to use it in the first
year the automobile is placed in service in the taxpayer's business. In later years, the
standard mileage rate or the actual expense method may be used. If the standard mileage
rate is used in the first year of business use, the taxpayer is considered to have elected
not to use depreciation methods since the standard mileage rate allows for depreciation.
Because depreciation is considered a component of the standard mileage rate, the
taxpayer's basis in the automobile must be reduced by the depreciation allowed. For
purposes of computing the depreciation allowed for years in which the standard mileage
rate was used, the IRS allows 12 cents per mile for calendar years 1995-1999.
These rates do not apply for any year in which the actual cost method was used. For
purposes of computing adjusted basis for years before 1990, an automobile is considered to
have been driven no more than 15,000 business miles in any one year, even though the
actual business mileage may be more, and the automobile is considered fully depreciated
after 60,000 miles of business use at the maximum standard mileage rate.
The standard mileage rate may not be used to compute the deductible expenses of:
• vehicles used for hire, such as taxicabs;
• two or more vehicles used simultaneously (such as in fleet operations); or
• any vehicle that is leased, rather than owned, by the taxpayer, unless the taxpayer uses either the standard mileage rate or a FAVR allowance to compute the deductible business expenses of the automobile for the entire lease period.
/Footnote/ 545 Rev. Proc. 98-63, §5.06(1).
For taxable years beginning after 1997, rural mail carriers employed by the U.S. Postal Service who receive qualified reimbursements for expenses incurred by such employee for the use of a vehicle in performing the collection and delivery of mail are allowed a deduction for the use of such vehicle in an amount equal to the amount of such qualified reimbursement.
Footnote/ 545.1 §162(o), as amended by the Taxpayer Relief Act of 1997, P.L. 105-34. Qualified reimbursements are the amounts paid by the U.S. Postal Service to employees as an equipment maintenance allowance under the 1991 collective bargaining agreement, which may be increased by no more than the rate of inflation. §162(o)(2).
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Rev Procs
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Revenue Procedure 98-63 |
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.01 In general. The standard mileage rate for transportation expenses is 31 cents per mile for all miles of use for business purposes. This business standard mileage rate will be adjusted annually (to the extent warranted) by the Service, and any such adjustment will be applied prospectively.
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Start of Revenue Procedures Section
Tax
Killers 
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cars and trucks excluded from depreciation limits
Car - law requirements for recordkeeping
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