ABC Taxes, Tips & Tools

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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