Many business men and women use their own personal car, truck or van for their business. Others have put their personal vehicle in their business’ name. Still others have a fleet of passenger vehicles for the use of their business. Passenger vehicles are listed property which requires special documentation of business use. As listed property passenger vehicles place in business service have one thing in common, the business owner or employee who uses the vehicle needs to keep a log documenting business use, verses commuting and personal usage so that the federal deduction for automobile expenses of the business use of the vehicle can be determined.
In certain circumstances when the vehicle has been converted in a very specific way such that it can only be used for business purposes a log need not be kept, but merely slapping a magnet with the business’ name on the side of the car will NOT eliminate the need for the logbook. Ambulances, hearses and vehicles for hire do not require the logbook.
What is a passenger vehicle? Passenger vehicles are defined as any four-wheeled vehicle (including a truck or van) that is made primarily for use on public streets, roads, and highways. Its unloaded gross vehicle weight (gross vehicle weight in the case of a truck or van) must not be more than 6,000 pounds. Vehicles that weigh more than 6,000 pounds are not considered passenger vehicles, but trucks and SUVs that exceed this weight do have their own limitations for deductions (not discussed in this blog).
Why is a mileage log required? Non business use of a passenger vehicle is not deductible for tax purposes; non business uses includes mileage of going to and from home to the place of business, such mileage is called commuting mileage. An employee’s non business use of a business-owned passenger vehicle is considered a taxable fringe benefit to the employee. If a business does not keep the mileage log the IRS may disallow ALL of the vehicle’s expenses, which is generally a bad thing, so, keep and regularly update the mileage log.
What does a mileage log need?
- Mileage at the start of the year and mileage at the end of the year such that the total mileage on the vehicle can be figured.
- Date of each business trip.
- Mileage at the start and the end of each business trip so that the total mileage of each trip can be figured.
- Business purpose served by the trip: where the driver was going and why they were going there.
- The log entries need to be made at or near the time of the business trip.
- The log needs to be a written log.
- Like all business receipts the business and/or employee needs to keep the written record with their tax records.
A small notebook can accommodate this information. Affordable mileage log books can may also be purchased at most office supply stores for a few dollars. In general it is best if the log book stays in the vehicle so that the mileage can be immediately noted.
Keep receipts for actual vehicle expenses. A business and/or employee of the business should also keep receipts documenting ALL expenses relating to the use of the passenger vehicle, such as gas, oil, maintenance, insurance, lease payments, garage rental, etc.
Figuring the Automobile Expense Deduction. At tax time add up all the business use mileage. Figure the total mileage on the year. The ratio of business mileage to total mileage is used to figure the deductible percentage of the actual expenses relating to the business use of the vehicle.
Using the Mileage Rate Deduction. Alternatively, the business may use the mileage rate deduction if that is the method they used when they first placed the vehicle in business service, however if section 179 or MACRS depreciation is taken, the mileage rate deduction my not be used thereafter. If 5 or more vehicles are used at the same time, the mileage rate deduction may not be used. If the vehicle is used for hire the mileage rate deduction may not be used. The mileage rate deduction is merely a cents per business mile calculation. In 2009 the mileage rate is 55 cents per business mile driven. If the mileage rate is used to figure the automobile expense deduction the business may NOT deduct the actual expenses: gas, oil, maintenance, insurance etc. However parking and tolls and the business percentage of very few other actual expenses such as personal property taxes associated with that vehicle can be taken in addition to the mileage rate deduction.
Depreciation: Depreciation is a way of taking the automobile expense associated with the purchase price of a passenger vehicle over time; in general the business may not take the total cost of acquiring the vehicle in the year of purchase as an automobile expense. The accelerated depreciation of a passenger vehicle under MACRS (IRS required method of depreciation) may not be taken when the vehicle business mileage is less than 50% of the total mileage, the straight-line method ADS (another required IRS method) must be used. If MACRS is used initially and business use drops below 50% before the vehicle is fully depreciated, the business may have to give back some of the accelerated depreciation taken in prior years. Depreciation may not be taken if the business is using the mileage rate to figure their automobile expense deduction. For a passenger vehicle placed in business service in 2009 the depreciation limit (including section 179) is $2960, $3160 for trucks and vans. If the vehicle qualifies for the special depreciation the the depreciation limits are $10960 for autos, $11160 for trucks and vans. Remember this depreciation is the maximum allowed, but the maximum depreciation allowed is reduced by the percentage of business use.
So keep a mileage log and keep your receipts.
If you require assistance with your business taxes or other business services, that is our business. Please give Art & Business Consulting a call. We would love to engage you as a client.
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