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You can deduct auto expenses
for business purposes using either
the Standard Mileage method or the Actual Expenses method. You may
choose the method you want to use. However; once you select the
method, you may be stuck with using that method for the entire
time you own or lease the vehicle.
IMPORTANT:
To be able to deduct auto (as
well as meal/entertainment and travel) expenses,
precise record keeping is required. Here is an
excerpt from a 2012 Tax Court case where substantiation was
a key issue:
Pro se taxpayer who “moonlighted” as building
inspector but who lost his inspector's license during
year at issue was denied business loss incurred in his
building inspection business: taxpayer failed to
substantiate vehicle and meals expenses as to
time, place and business
purpose as required by Code Sec. 274(d) .
Also, he didn't show that he paid or incurred license
fees, tuition and tools and supplies expenses in year at
issue; and fees repaid due to loss of license and bad
check from customer didn't qualify as bad debt within
meaning of Code Sec. 166 where neither amount was
reported as income. (Girish C. Patel v. Commissioner,
(2012) TC Memo 2012-9)
Here is a 2013
Tax Court decision where the taxpayer lost ALL of his auto
mileage deduction because of his failure to maintain a log:
Engineering field technician/independent contractor was
denied deduction for gas and mileage expenses of vehicle
used in part for work site visits: taxpayer didn't meet
Code Sec. 274(d) 's strict substantiation requirements
where, although he claimed that he kept driving log, he
had destroyed same, after being diagnosed with fatal
illness. Further, although he submitted bank statements
listing dates and amounts of, and names and location of
vendors from whom he made, gas and other vehicle-related
purchases, those statements didn't specify what was
purchased or show their business purpose. Similarly,
although it was clear taxpayer incurred mileage for
work-related site visits, he tried to substantiate same
only with his own testimony and engineering corp.'s
project calendar or other documents that just listed
general information. And odometer readings just showed
total miles driven, but didn't distinguish between
business and personal purpose. (Jeffrey S. Striefel v.
Commissioner, (2013) TC Memo 2013-102 )
Bottom line
- get a log book and keep it in your car - and record daily
your business trips (date, destination (from where to
where), purpose and
actual miles driven. If you have not done so already, then
while you have other records available to establish your
business driving trips made during the year, create a log NOW (Excel
spreadsheet should suffice) while you still have records
of where you went during the year (using your appointment
book, invoices, other records). While not
technically a contemporaneously kept log, it may save some
of your deduction if you have a reasonable auditor. Be
sure in your log to record your beginning (January 1st) and
ending (December 31st) odometer readings. Keep copies
of repair receipts, new tire receipts, etc that show a date
and odometer reading on that date that were dated close to
the beginning and end of the year to validate the beginning
and ending odometer readings you wrote down.
As a side note,
remember for meal/entertainment expenses, besides the date,
place and amount, you MUST record who you entertained and
their business relationship (client, potential client,
vendor, supplier, etc). You can record this
information on the back of the receipt. For lodging
expenses (travel out of town for business), be sure to keep
the lodging receipt. No lodging receipt means NO
DEDUCTION. |
While this section is primarily devoted to
vehicles used by self-employed taxpayers, the general rules apply to
employees who use their personal vehicle for business. However,
employees need to address how their employer reimburses them for
their car expenses.
This
is an excerpt from a 2013 case involving a taxpayer who commuted to work
daily that was located a significant distance from his home.
Because the workplace was a PERMANENT and not a TEMPORARY location, no
deduction for the travel was allowed:
Taxpayer was employed by National Security Tech at a remote
test site in the Nevada desert. Direct public transportation
to the site was unavailable, so taxpayer commuted by car.
Taxpayer figured that the commute from his home in North Las
Vegas to work and back was 160 miles per day, four days a
week. He argued that his commute was exceptional compared to
"ordinary commuting" and, accordingly, he should not be held
to the general rule that commuting expenses are
nondeductible. The Tax Court held, as it has before, that
"travel expenses which arise from going to and from work on
a daily basis are not ordinary business expenses deductible
under [IRC Sec.] 162(a)(2) regardless of the distance
traveled or the availability of housing at or near the work
site." While there are exceptions to the general rule, such
as commuting to a distant worksite for a temporary
assignment, taxpayer did not argue that this or any other
recognized exception applies. William Cor , TC Memo
2013-240 (Tax Ct.). |
The
IRS lowered its mileage rates for 2014. Here
is a recap of the standard mileage rates by year:
Tax Year: |
Business |
Moving or Medical |
Volunteer/ Charitable |
2002 IRS Mileage Rate |
36.5 Cents/Mile |
13 Cents/Mile |
14 Cents/Mile |
2003 IRS Mileage Rate |
36 Cents/Mile |
12 Cents/Mile |
14 Cents/Mile |
2004 IRS Mileage
Rate |
37.5 Cents/Mile |
14 Cents/Mile |
14 Cents/Mile |
2005 IRS Mileage
Rate
Jan 1 -
Aug.31 |
40.5 Cents/Mile |
15 Cents/Mile |
14 Cents/Mile |
2005 IRS Mileage
Rate
Sep. 1 -
Dec. 31 |
48.5 Cents/Mile |
22 Cents/Mile |
14 Cents/Mile |
2006 IRS Mileage
Rate |
44.5 Cents/Mile |
18 Cents/Mile |
14 Cents/Mile |
2007 IRS Mileage Rate |
48.5 Cents/Mile |
20 Cents/Mile |
14 Cents/Mile |
2008 IRS Mileage Rate
Jan 1 - Jun.30
|
50.5 Cents/Mile |
19 Cents/Mile |
14 Cents/Mile |
2008 IRS Mileage Rate
Jul. 1 - Dec.
31 |
58.5 Cents/Mile |
27 Cents/Mile |
14 Cents/Mile |
2009 IRS Mileage Rate
|
55 Cents/Mile |
24 Cents/Mile |
14 Cents/Mile |
2010
IRS Mileage Rate |
50 Cents/Mile |
16.5 Cents/Mile |
14 Cents/Mile |
2011
IRS Mileage Rate
Jan 1 - Jun.30 |
51 Cents/Mile |
19 Cents/Mile |
14 Cents/Mile |
2011
IRS Mileage Rate
Jul 1 - Dec 31 |
55.5 Cents/Mile |
23.5 Cents/Mile |
14 Cents/Mile |
2012
IRS Mileage Rate
|
55.5 Cents/Mile |
23 Cents/Mile |
14 Cents/Mile |
2013
IRS Mileage Rate |
56.5 Cents/Mile |
24 Cents/Mile |
14 Cents/Mile |
2014
IRS Mileage Rate |
56 Cents/Mile |
23.5 Cents/Mile |
14 Cents/Mile |
2014 Update
The supplemental
first year vehicle write-offs due to
bonus depreciation that has been a
significant benefit to most businesses
will expire at the 50% rate at the end
of 2013 unless Congress extends bonus
depreciation. Information I have
received shows no change from the basic
2013 amounts for passenger automobiles
and a slight $100 rise for trucks and
vans in 2014, 2015 and 2016. Release of
the official 2014 figures is expected
early in 2014.
2014 vehicle depreciation caps
The
projected luxury auto depreciation
limits under
Code Sec. 280F
for passenger automobiles placed in
service in 2014 are:
·
$3,160 for the first year,
the same as for 2013 ($11,160 for 2014,
same as for 2013, only if Congress
extends bonus depreciation into 2014);
·
$5,100 for the second tax
year, the same as for 2013;
·
$3,050 for the third tax
year, the same as for 2013; and
·
$1,875 for each tax year
thereafter, the same as for 2013.
Trucks and vans
The
projected maximum depreciation limits
under
Code Sec. 280F
for trucks and vans first placed in
service during the 2014 calendar year
are:
·
$3,460 for 2014, up from
$3,360 for 2013 ($11,460 if bonus
depreciation is extended);
·
$5,500 for the second tax
year, up from $5,400 for 2013;
·
$3,350 for the third tax
year, up from $3,250 for 2013; and
·
$1,975 for each tax year
thereafter, the same as for 2013.
Comment
Trucks and vans
are defined as passenger automobiles
built on a truck chassis, including
minivans and sport utility vehicles
(SUVs) built on a truck chassis. Such
vehicles with a gross weight of more
than 6,000 pounds, however, generally
are not subject to the
""luxury""
depreciation limits.
Cents-per-mile valuation
One permitted
method that an employer can use to value
the personal use of an employer-provided
automobile is the standard mileage
allowance rate but only if the vehicle’s
FMV does not exceed certain amounts. For
2014 these amounts are projected to be:
·
$16,000 for a passenger
automobile (same as for 2013); and
·
$17,300 for a truck or
van, which includes minivans and SUVs
built on a truck chassis (up from
$17,000 in 2013) |
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Below
is a graphical image (from the IRS) that may help explain the situations
where an EMPLOYEE can deduct mileage (either standard rate or actual
expenses). If a company has an employee attend training ON THE
SAME DAY as they also perform work (e.g., you go to work from 8-12, then
to a class at another location from 1-5), then the training can be
treated as a "second job" in the example below. If you
simply spend time (say, a week) traveling to the home office of the
company (in the general area where normal work is performed) instead of
commuting to a typical work site, then the travel is considered
commuting and NOT deductible. However, if the company send you far
away to a training location, then you are no longer within the area of
your "tax home" - and that travel can be deductible.
The Standard Mileage Method
Using this method, you compute how many
miles you drove for business, then multiply that number by the standard
mileage rate that the IRS allows for the tax year (40.5 cents per mile
for 2005 through 8/31/2005, then 48.5cents for the rest of 2005).
That decreased to 44.5 cents in 2006. For 2007, it will go back up
to 48.5 cents per business mile. For 2008, it increased to 50.5 cents
per mile.
You can also deduct parking fees and tolls
in addition to the standard business mileage rate.
HOWEVER - any parking fees to park at your normal work are considered
part of your commuting expense (as is the mileage to and from your
normal work place)
and are not deductible.
Example:
Tom is a real estate broker who used his
personal car in his business. He used his car for a total of 20,000
miles in 2004. His business usage amounted to 12,000 miles (8,000
between 1/1 and 8/31, and 4,000 from 9/1 through 12/31/2005), and his
personal use totaled 4,000 miles. In addition, he paid parking fees
and tolls of $500 while visiting clients and escrow companies. Tom's
deduction for 2005 is $5,680 computed as follows:
8,000 x 40.5 cents = $3,240
4,000 x 48.5 cents = $1,940
$3,240 + $1,940 + $500 = $5,680 **
Using the standard mileage rate means easier
record keeping and reporting.
Qualifying for the Standard Mileage
Deduction
Here
are several important aspects to using the standard mileage deduction:
1.
You must actually OWN or LEASE the car. If you use
someone else's vehicle for business travel, you can ONLY deduct your
out-of-pocket expenses for the business miles traveled. You are
NOT entitled to depreciation since you do not own the asset (vehicle).
2.
You must use the standard mileage method in
the first year you place your car in service in your business if you
want to use that method at any other time during the life of the vehicle.
3.
If you want to use the standard mileage method for a leased
vehicle, you must use that method during the entire lease period. You cannot switch and use actual expenses in lieu of
the standard mileage rate partway through the lease.
Starting in 2004, the standard mileage
rate rules changed to allow use of the standard mileage rate if you used no more than four vehicles at the same time
for business. Previously, you couldn't use the standard
mileage method with respect to ANY car if you owned two or more
vehicles that were used at the same time in the same business.
If you own more than one car that you use
for business, but alternate use of vehicles, (for example, you normally
use your sedan, but occasionally use a pick-up truck if you need to do
some hauling), you can use the standard mileage method for both cars.
You cannot use the standard mileage method
if you:
-
Use the car for hire (such as a taxi)
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Operate
more than four cars at the same time
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Claimed a depreciation deduction for the
vehicle using MACRS in an earlier year
-
Claimed a Section 179 deduction on the
car
-
Claimed actual expenses after 1997 on a
leased vehicle
-
Are a rural mail carrier who received a
qualified reimbursement of expenses
IF
YOU SELL A VEHICLE FOR WHICH YOU CLAIMED THE STANDARD MILEAGE RATE, YOU
MAY HAVE A TAXABLE GAIN, OR A REDUCED LOSS BECAUSE YOU NEED TO TAKE INTO
CONSIDERATION THE IMPUTED DEPRECIATION CLAIMED BY WAY OF THE MILEAGE
DEDUCTION.
You
multiply the BUSINESS MILES claimed over the life of the vehicle
by the rates below for the specific year.
Year Method Used |
Amount of Adjustment
(Cents per Mile) |
1988 |
10.5 |
1989-91 |
11 |
1992-93 |
11.5 |
1994-99 |
12 |
2000 |
14 |
2001-2002 |
15 |
2003-2004 |
16 |
2005-2006 |
17 |
2007 |
19 |
2008-2009 |
21 |
2010 |
23 |
2011
(1/1-6/30) |
22 |
For example, if a car was
purchased for $10,000 on 1/1/2005 and used for 7,000
business miles in 2005, and the car was sold on 1/1/2006,
the basis would be reduced by $1,190 (7,000 x $0.17).
If the car sold for $9,000, there would be a gain of $190
($9,000 less [$10,000-$1,190 = $8,810]) |
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Deducting Actual Expenses
You may be able to deduct your actual car
expense, such as:
If you use your car for personal and
business use, you must divide your expenses between the business and
personal usage periods. You can divide your expenses based on the miles
driven for each purpose. Basically, this means that you must keep track
of your mileage! You must also keep complete and precise records of your
expenses.
Tracking Depreciation of the Vehicle
The most complicated deduction you can take
using the Actual Expenses method is for depreciation. In general, you
are allowed to depreciate your vehicle using the MACRS depreciation
method. But if
you used the standard mileage rate method at any time during the life of
the auto, you must use the straight-line method to calculate
depreciation.
If the vehicle is used less than 50% of the
time for business, you must use the straight-line method. In addition,
you may take a Section 179 deduction in the year that the vehicle is
placed into service in your business. as long as your business use
exceeds 50%. Like other expenses, your depreciation is only allowed to
the extent of your business use of the vehicle.
Depreciation for vehicles is limited to a
maximum amount per vehicle. The following chart summarizes the maximum
depreciation and Section 179 expense allowed for each vehicle through
2006. I will update the chart when I have time. The
information is available on the web:
For
Cars Placed in Service |
Passenger Car Depreciation
Allowable in- |
After |
Before |
Year 1 |
Year 2 |
Year 3 |
Year 4
etc. |
12/31/92 |
1/1/94 |
2,860 |
4,600 |
2,750 |
1,675 |
12/31/93 |
1/1/95 |
2,960 |
4,700 |
2,850 |
1,675 |
12/31/94 |
1/1/97 |
3,060 |
4,900 |
2,950 |
1,775 |
12/31/96 |
1/1/98 |
3,160 |
5,000 |
3,050 |
1,775 |
12/31/97 |
1/1/99 |
3,160 |
5,000 |
2,950 |
1,775 |
12/31/98 |
1/1/00 |
3,060 |
5,000 |
2,950 |
1,775 |
12/31/99 |
1/1/04 |
3,060 |
4,900 |
2,950 |
1,775 |
12/31/03 |
1/1/05 |
2,960 |
4,800 |
2,850 |
1,675 |
12/31/04 |
1/1/06 |
2,960 |
4,700 |
2,850 |
1,675 |
12/31/05 |
1/1/07 |
2,960 |
4,800 |
2,850 |
1,775 |
12/31/06 |
1/1/08 |
3,060 |
4,900 |
2,850 |
1,775 |
Note that the
maximum annual amounts shown in the chart
assume that the vehicle was used 100 percent
for business. The amounts must be
proportionately reduced if your business use
of the vehicle was less than 100 percent.
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In
2007, you purchased a new
car. Sixty percent of the
mileage you drove during the
year was for business
purposes. So, your maximum
depreciation deduction for
the first year would be
$3,060 x .60 = $1,836. |
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This table
represents the maximum depreciation
you can claim. For the first year, if you
used the car more than 50 percent for
business, you may claim a proportionate part
of the full amount, regardless of the actual
cost of the car.
Beginning in
2003, separate maximum depreciation caps
apply to trucks and vans. The following
amounts are for trucks and vans placed in
service in 2007: $3,260 in year one; $5,200
in year two; $3,050 in year three; and
$1,875 for each year thereafter.
For later years,
you must compute your depreciation on the
car using the usual methods, but can't
deduct more than the amount shown in the
chart. As long as you continue to use the
car more than 50 percent for business, you
would multiply the business percentage of
the car's cost by the percentage shown in
the normal MACRS table for five-year
property. The dollar amounts in the chart
above, reduced proportionately for any
non-business use of the car, acts as a
ceiling on the amount of depreciation you
can actually claim.
If you use the
car 50 percent or less for business, you
must use the
straight-line ADS
method for five-year property for that year,
and for every subsequent year.
If you started
out depreciating the car under MACRS, but
then your business use dropped to 50 percent
or less which required you to switch to the
straight-line ADS method, you will have to
"give back" some of the depreciation you
claimed. Specifically, you'll have to report
as income the amount (if any) by which the
total MACRS depreciation you claimed is
greater than the total straight-line
depreciation you would have been entitled to
claim.
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Save Money
If you
use a van, truck, or
sport-utility vehicle that
weighs over 6,000 pounds in
your business, it is not
subject to the annual
depreciation dollar caps or
the
annual
lease income inclusion rules.
Vehicle eligibility is based
on a gross vehicle weight
rating (GVWR), which is the
maximum allowable weight of
a fully loaded vehicle
(i.e., weight of vehicle,
including vehicle options,
passengers, cargo, gas, oil,
coolant, etc.). Generally,
the GVWR is equal to the sum
of the vehicle's curb weight
and payload capacity. The
GVWR of a particular vehicle
is usually located on the
vehicle's Safety Compliance
Certification Label, usually
attached to the left front
door lock facing or the door
latch post pillar.
The
American Jobs Creation Act
of 2004, however, limits the
cost of an SUV that may be
expensed in the first year
under the expensing election
from $125,000 to $25,000,
even if the SUV is exempt
from the depreciation
limitations. The reduced
election amount applies to
SUVs placed in service after
October 22, 2004. The rules,
otherwise, remain the same. |
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If you own a
relatively lower-priced car, you can expect
to recover the entire
basis
of the business portion of the car over the
six tax years for which the MACRS
depreciation deductions are generally
claimed.
However, when part
of the normal MACRS deduction is disallowed
because of the luxury car limitations,
you'll recover only a portion of the car's
basis during the normal recovery period. In
that case, you may continue to depreciate
the car for as long as it takes to recover
the remaining basis of the business
portion of the car.
* - Only if the 50% bonus depreciation is
elected, if not the first year cap of 7,660 must be used.
If you lease your vehicle, you must reduce
the deduction for your lease payment by an inclusion amount, which is
similar to limiting the depreciation on the vehicle in order to place
leased cars and purchased cars on equal footing as far as deductions.
The inclusion amount is based on the fair market value of the vehicle at
the time of purchase. The IRS publishes tables that are used to
calculate the amount of the inclusion (reduction in lease expense). For
more information on depreciation and leased vehicles, see
IRS Publication 463: Travel, Entertainment, Gift,
and Car Expenses.
Record Keeping Requirements
If you deduct automobile expenses, you must
be able to prove your expenses. Keep adequate records with sufficient
evidence to support your own statements about your business usage.
Write it Down.
The IRS prefers written evidence to oral
evidence. Electronic evidence is basically the same as written evidence
– you may keep your mileage on your personal digital assistant.
Keep a Log.
For either method, you should keep a mileage
log showing business and personal miles driven for the year.
Keep Receipts.
If you are using the actual expenses method,
you must keep the mileage log plus your receipts, cancelled checks, or
other evidence to support your particular vehicle expenses.
You should keep your records for at least
three years after filing your tax return. Caution: states have different
statutes of limitation, meaning that you may have to keep the records
longer for state purposes than you otherwise would for federal purposes.
Find out your state requirements before you toss those records.
For more information on deductions for the
business use of your auto, see
IRS Publication 463: Travel, Entertainment, Gift,
and Car Expenses.
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Additional Comments
You can deduct any additional costs you had for hauling tools or
instruments (such as the rental of a trailer you tow with your car). You
cannot deduct fines you paid for traffic violations, sales taxes paid
when purchasing a car (these are part of the car's basis when
calculating depreciation), or, if you are an employee, interest paid on
a car loan, as this interest is treated as personal interest. However,
if you used a home equity loan to purchase your car, you may be able to
deduct this personal interest on Schedule A.
If the car was used only partly for business, expenses must be allocated
between personal and business use. You will usually use a percentage
based on miles driven for business purposes during the year over total
number of miles driven during the year.
Distinguishing between business and personal mileage.
Following are the most
commonly encountered driving situations for employees and
self-employed taxpayers, and how the mileage should be treated:
Overnight trips.
A taxpayer who drives away from his tax home on an overnight trip
that is undertaken primarily for business is engaged in business
driving, even if there is some personal element to his trip (e.g., a
visit with relatives). By contrast, if the trip is undertaken
primarily for personal reasons, the mileage between tax home and
destination is not business related even if the taxpayer engages in
some business activity at the destination. (
Reg. § 1.162-2(b)(1) )
Travel between two
local business locations. This is treated as business travel
whether the locations are related to one business or several. (
Rev Rul 95-109, 1995-1 CB 261 ). For example, An
accountant has an office in town, but regularly travels to clients
during the day by auto. The mileage between his office and the
clients' offices, and then back to his office, is business mileage
Commuting.
The trip from the taxpayer's home to his regular place of business
or employment, and back, is personal travel. (
Reg. § 1.162-2(e) ,
Reg. § 1.262-1(b)(5)
) Where the taxpayer works outside of the home
and has several regular places of business, the trip from home to
the first business stop, and the trip back home from the last
business stop, is nondeductible commuting. A regular place of
business is any location at which the taxpayer works or performs
services on a regular basis. (
Rev Rul 99-7, 1999-1 CB 361 ).
For example, a doctor performs services on a regular basis at his
office in a medical-arts building, and at a hospital clinic. The
trip from home to either practice location is commuting. However, if
the doctor drives from his office to the clinic during the day, and
then back to the office, that mileage is business-related.
Travel between a home
that's the principal place of business and another place of work.
If a taxpayer's residence is his principal place of business, he can
deduct daily transportation expenses incurred in going between the
residence and another work location in the same trade or business,
regardless of whether the other work location is regular or
temporary and regardless of the distance. Whether the taxpayer's
residence is his principal place of business is determined under the
home office expense deduction rules of
Code Sec. 280A(c)(1)(A)
, as explained below. (
Rev Rul 99-7, 1999-1 CB 361 )
Travel between home
and a temporary business location. Under the “temporary”
work location rules:
(1) Transportation
between the taxpayer's residence that's not his principal place
of business and a temporary business location outside the
metropolitan area where the taxpayer lives and normally works is
business transportation. For example, an employee normally
drives or takes the train to the company offices in the city.
Every two or three months, he spends a couple of days at a
supplier's factory 30 miles away. If he drives each day from his
home to the factory and back, the trip is treated as business
transportation.
(2) Transportation
between the taxpayer's residence that's not his principal place
of business and a temporary work location in the same trade or
business within the metropolitan area where the taxpayer
lives and normally works is business transportation only if the
taxpayer has one or more regular work locations away from his
residence. (
Rev Rul 99-7, 1999-1 CB 361 )
When is a taxpayer's
residence his principal place of business? There are two
ways that a taxpayer's residence qualifies as his principal place of
business: the statutory administrative/management activities test
and the comparative analysis test.
Under the statutory
administrative/management activities test, the principal place of
business test is met if a portion of the home is used for the
administrative or management activities of any trade or business of
the taxpayer, but only if there is no other fixed location where the
taxpayer conducts substantial administrative or management
activities of that trade or business. (
Code Sec. 280A(c)(1) ) Examples of
administrative or management activities are: billing customers,
clients or patients; keeping books and records; ordering supplies;
setting up appointments; and forwarding orders or writing reports.
Under the comparative
analysis test, set forth under the Supreme Court's Soliman
decision, the determination of a taxpayer's principal place of
business requires a comparative analysis of: (1) the relative
importance of the activities performed at each business location,
and (2) the time spent at each place, i.e., the amount of time spent
at the home compared with the amount of time spent in each of the
other places where business activities occur. If the nature of the
trade or profession requires the taxpayer to meet or confer with
clients or patients or to deliver goods or services to a customer,
the place where that contact occurs, particularly where that place
is a facility with unique or special characteristics, is often
important.
When is a work
location “temporary”? A work location is “temporary” for
purposes of deducting daily transportation costs if employment at
the location is realistically expected to last (and in fact does
last) for one year or less. If employment at a work location
initially is realistically expected to last for one year or less,
but at some later date it is realistically expected to exceed one
year, that employment is temporary (absent facts and circumstances
indicating otherwise) until the date that the taxpayer's realistic
expectation changes, and is treated as not temporary after that
date. (
Rev Rul 99-7, 1999-1 CB 361 )
Where an assignment at a
work location is expected to last for more than one year, but the
taxpayer is realistically expected to be present at that location for no more than 35 workdays (partial or complete) during each
of the calendar years in that period, the location is temporary for
a calendar year in which he actually works there for no more than 35
partial or complete workdays. For example, a taxpayer who
normally works in an office building works at an offsite location on
an assignment lasting 36 months, but he is at the offsite location
for only 30 days each year. The offsite location is “temporary,” and
his round-trip transportation costs between home and that location
are deductible.
* * * * * * * * * *
Not all commuting miles are treated the same for tax purposes and they
may not be considered to be for business purposes. Your costs of driving
a car between your home and your main or regular place of work are
personal commuting expenses and are not deductible, no matter how far
your home is from your regular place of work and regardless whether you
worked during the commuting trip. For example, if you make business
calls on your cell phone while driving or you have a business associate
riding with you and you discuss business on the way to work, this does
not change the regular commute from a personal expense to a business
expense. Additionally, if you have a business advertisement on your car
or if you haul tools or instruments in your car while commuting to and
from work, the regular commute is still considered a personal expense.
Although regular commuting to and from work is not deductible, commuting
miles may count as business use if your home is your office, if you are
working out of a temporary location, or if you work in two or more
different places during the day. For example:
Your principal place of business is in your home. You can deduct the
cost of round-trip transportation between your qualifying home office
and your client or customer's place of business.
You have no regular office and you do not have an office in your home.
In this case, the location of your first business contact is considered
your office. Transportation expenses between your home and this first
contact are nondeductible commuting expenses. Transportation expenses
between your last business contact and your home are also nondeductible
commuting expenses. Although you cannot deduct the costs of these trips,
you can deduct the costs of going from one client or customer to
another.
You regularly work in an office in the city where you live. Your
employer sends you to a one-week training session at a different office
in the same city. You travel directly from your home to the training
location and return each day. You can deduct the cost of your daily
round-trip transportation between your home and the training location.
You do not have a regular place of work but you ordinarily work in the
metropolitan area where you live. You can deduct your daily
transportation costs between your home and a temporary work site if it
is outside that metropolitan area.
You work at two places in one day. Whether or not you work for the same
employer, you can deduct your expense of getting from one workplace to
the other. However, if for some personal reason you do not go directly
from one location to the other, you cannot deduct more than the amount
it would have cost to go directly from the first location to the second.
Fees you pay to park a car at work or tolls paid to get to work are
nondeductible commuting expenses. However, business-related parking fees
and tolls are deductible (for example, when visiting a customer,
traveling to a temporary work location, attending a seminar, or when
looking for a job in a related field) whether you take the standard
mileage method or actual expenses method.
**************************************************************************
Car and Truck Expense Deduction Reminders
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FS-2006-26, October 2006
The Internal Revenue
Service reminds taxpayers to become familiar with the
tax law before deducting car- and truck-related business
expenses.
Overstated adjustments, deductions, exemptions and
credits of all types account for more than $30 billion
in unpaid taxes annually, according to the IRS. In an
effort to educate taxpayers regarding their obligation
to file accurate tax returns, this fact sheet, the fifth
in a series, explains the rules for deducting car and
truck expenses.
Deductible Car and Truck Expenses
Ordinarily, expenses related to use of a car, van,
pickup or panel truck for business can be deducted as
transportation expenses. Use of larger vehicles, such as
tractor-trailers, is treated differently and is not part
of this discussion. In order to claim a deduction for
business use of a car or truck, a taxpayer must have
ordinary and necessary costs related to one or more of
the following:
-
Traveling from one work location to another
within the taxpayer’s tax home area. (Generally,
the tax home is the entire city or general area
where the taxpayer’s main place of business is
located, regardless of where he or she resides.)
-
Visiting customers.
-
Attending a business meeting away from the
regular workplace.
-
Getting from home to a temporary workplace when
the taxpayer has one or more regular places of
work. (These temporary workplaces can be either
within or outside taxpayer’s tax home area.)
Expenses related to travel away from home overnight
are travel expenses. These expenses are discussed in
Chapter One of Publication 463, “Travel, Entertainment,
Gift, and Car Expenses.” However, if a taxpayer uses a
car while traveling away from home overnight on
business, the rules for claiming car or truck expenses
are the same as stated above.
It is important to note that costs related to travel
between a taxpayer’s home and regular place of work are
commuting expenses and are not deductible.
Taxpayers can choose to use either the standard
mileage rate or actual expenses to compute their
allowable business deduction. They may want to figure
the deduction using both methods to see which provides a
larger deduction.
Standard Mileage Rate Method
The standard mileage rate may be used to figure the
deductible costs of a vehicle that is owned or leased.
If a taxpayer wishes to use the standard mileage rate
for a leased vehicle, it must be used for the entire
lease period. In other words, a taxpayer must use the
standard mileage rate for the first year a vehicle is
available for business use in order to use the standard
mileage rate in subsequent years.
The standard mileage rate is adjusted annually by the
IRS to reflect changes in the cost of operating a
vehicle. In some situations it is adjusted during the
year.
The standard mileage rate is used in place of actual
expenses. Taxpayers who choose the standard mileage rate
may not deduct actual expenses, such as depreciation,
lease payments, maintenance and repairs, gasoline
(including gasoline taxes), oil, insurance or vehicle
registration fees. Business-related parking fees and
tolls may be deducted in addition to the standard
mileage rate. Fees for parking at a taxpayer’s main
place of business or tolls related to commuting to and
from that main place of business are personal expenses
which are not deductible.
The standard mileage rate cannot be used if the
taxpayer:
-
Uses the car for hire (such as a taxi).
-
Uses five or more cars at the same time (as in
fleet operations).
-
Claims depreciation or a section 179 deduction
(Publication 463, Chapter 4).
-
Is a rural mail carrier who receives a qualified
reimbursement (Publication 463, Chapter 4).
Actual Expenses Method
Actual car or truck expenses include:
-
Depreciation
-
Lease payments
-
Registration fees
-
Licenses
-
Gas
-
Insurance
-
Repairs
-
Oil
-
Garage rent
-
Tires
-
Tolls
-
Parking fees
These and other expenses are discussed in detail
beginning on page 16 of Publication 463. If business use
of the vehicle is less than 100 percent, expenses must
be allocated between business and personal use. Only the
business use percentage of each expense is deductible.
For example, if, based on records maintained by a
taxpayer, total actual vehicle expenses for a given year
are $2,500 and the vehicle is used 75 percent for
business, the allowable deduction using the actual
expense method is $1,875 ($2,500 x 75 percent).
Recordkeeping
It is important to keep complete records to
substantiate items reported on a tax return. In the case
of car and truck expenses, the types of records required
depend on whether the taxpayer claims the standard
mileage rate or actual expenses.
To claim the standard mileage rate, appropriate
records would include documentation identifying the
vehicle and proving ownership or a lease and a daily log
showing miles traveled, destination and business
purpose.
For actual expenses, a mileage log helps establish
business use percentage. Taxpayers should also retain
receipts, invoices and other documentation to show cost
and establish the identity of the vehicle for which the
expense was incurred. For depreciation purposes they
need to show the original cost of the vehicle and any
improvements as well as the date it was placed in
service.
Another 2013 Tax
Court Decision relating to contemporaneous record
keeping requirements:
UNITED
STATES OF AMERICA, Plaintiff, v. PHILIP L. HART, et al
Defendant.
Case
No. 2:11-CV-00513-EJL
Travel and
Mileage Expense Deductions
The United States
argues Mr. Hart cannot deduct travel or mileage
expenses because he failed to keep
contemporaneous records of the business purpose
of the trips. (Dkt. 72 at 7.) In particular, the
United States points to the “Car and Truck
Expenses” including mileage that are claimed on
his tax returns.
Section 162(a)(2)
allows a taxpayer to deduct travel expenses,
including mileage, “in the pursuit of a trade or
business.”Tilman v. United States, 644
F.Supp.2d 391, 407 [104 AFTR 2d 2009-5773] (S.D.N.Y.
Aug. 3, 2009). Travel expenses are subject to
the heightened substantiation requirement of §
274(d).Id. (citing § 274(d); 26 C.F.R. §
1.274-5T(b)(2)). “The tax code precludes a
deduction for ... auto and travel expenses,
unless a taxpayer substantiates by [1] adequate
records or [2] by sufficient evidence
corroborating the taxpayer's own statement the
following five elements: the amount, date, time,
place and business purpose of the expense.”
Id. (citing Reynolds v. Commissioner,
296 F.3d 607, 615 [90 AFTR 2d 2002-5294] (7th
Cir. 2002); 26 C.F.R. § 1.274-5T(b)(2)). As
stated above in the previous section of this
Order, “[t]axpayers are required to keep
sufficient records to substantiate deductions.”Sparkman,
509 F.3d at 1159 (citing I.R.C. § 6001; Treas.
Reg. § 1.6001–1(a)).Section 274(d) requires that
the taxpayer substantiate business expenses “by
adequate records or by sufficient evidence
corroborating his own statement.” 26 U.S.C. §
274(d). Section 274(d) sets forth substantiation
requirements for claimed deductions for travel
expense stating no deduction shall be allowed:
-
((1)) under
section 162 or 212 for any traveling expense
(including meals and lodging while away from
home),
-
((2)) for any
item with respect to an activity which is of
a type generally considered to constitute
entertainment, amusement, or recreation, or
with respect to a facility used in
connection with such an activity, or
-
((3)) for any
expense for gifts,
...
unless the
taxpayer substantiates by adequate records
or by sufficient evidence corroborating his
own statement (A) the amount of such expense
or other item, (B) the time and place of the
travel, entertainment, amusement, recreation
or use of the facility, or the date and
description of the gift, (C) the business
purpose of the expense or other item, and
(D) the business relationship to the
taxpayer of persons entertained, using the
facility, or receiving the gift.
See 26
U.S.C. § 274(d). “Absent substantiation of an
element of [§] 274(d) (date, place, amount,
business purpose, and business relationship),
the deduction for [such] expenses is to be
disallowed.”Meridian Wood, 725 F.2d at
1188 (citations omitted); see also Sparkman,
509 F.3d at 1159.
To deduct items in these
categories, a taxpayer must show that the item
claimed is directly related to or associated
with the active conduct of their trade or
business. Heinbockel v. Commissioner,
Nos. 12139-09, 9311-10, 2013 WL 1953732 [TC Memo
2013-125], at 18 (U.S. Tax Ct. May 13, 2013). To
do so, the taxpayer must provide" adequate
records” showing the amount of the expense, the
time and place of the expense, the business
purpose of the expense, and the business
relationship to the expense claimed.Id.
(citing § 274(d); § 1.274-5T(c)(2)(I)). “A
contemporaneous log is not required,” but a
statement not made at or near the time of the
expenditure has the same degree of credibility
only if the corroborative evidence has “a high
degree of probative value.” Id. (citing §
1.274-5T(c)(1) and Reynolds v. Commissioner,
296 F.3d 607, 615 [90 AFTR 2d 2002-5294]–16 (7th
Cir. 2002) (noting that keeping written records
is not the only method to prove § 274 expenses
but “alternative methods are disfavored”)).
These substantiation requirements do not allow
estimations of expenses.
Id.
Mr. Hart's
claimed travel expenses are not supported with
contemporaneous logs or similar statements that
detailed the time or place of the expense or its
business purpose as § 274 generally requires.
His proof, instead, consists of his own
deposition testimony that in compiling his tax
returns, he went through his checkbook and
credit card statements one by one and assigned
each expense to one of the businesses or as a
personal expense. Mr. Hart's own deposition
testimony however reveals that he did not
distinguish between his business and personal
activities during and throughout the year.
Instead, he separated the two only later for
purposes of filing his tax returns. Such record
keeping is not sufficient to satisfy § 274.
Further, Mr. Hart has not provided any
contemporaneous logs, records, or receipts
indicating the time or number of miles driven,
much less bring forth any records detailing the
business purpose of each trip he made or state
for which of his alleged businesses a particular
trip was made. Although there were a few
receipts in the records he used to refresh his
memory, his deposition testimony shows that most
of Mr. Hart's claimed deductions were derived
from his own recollections made some time after
the expense was incurred.
This “kind of
memory jogging” is not enough to meet the strict
substantiation requirement to provide “adequate
records.” Heinbockel, supra at 20
(citing§ 274(d) and § 1.274-5T(c)(1), Temporary
Income Tax Regs.). “[S]uch testimony is not an
“account book, diary, log, statement of expense,
trip sheet, or similar record made at or near
the time of the expenditure or use," much less a
record that explained the business purpose.”Id.
(citing § 1.274-5T(c)(2)(ii), Temporary Income
Tax Regs.). However, where a taxpayer is unable
to substantially comply with the requirements
of section 1.274-5T(c)(2), an exception exists
allowing the taxpayer to satisfy the showing
requirement by producing: (1) a
statement-whether written or oral-“containing
specific information in detail as to such
element”; and (2) “other corroborative evidence
sufficient to establish such element.”Heinbockel,
supra at 20 (citing § 1.274-5T(c)(3)(I)).
The
regulation continues, in greater detail, if
that element is the cost or amount, time,
place, or date of an expenditure or use, the
corroborative evidence shall be direct
evidence, such as a statement in writing
setting forth detailed information about
such element, or documentary evidence such
as a receipt. If that element is either the
business relationship to the taxpayer of
persons entertained, or the business purpose
of an expenditure, the corroborative
evidence may be circumstantial. Id. The
corroborative evidence supporting a
no contemporaneous statement must have a
high degree of probative value to elevate
such statement and evidence to the level of
credibility reflected by a record made at or
near the time of the expenditure or use
supported by sufficient documentary
evidence.
Id.
(citing § 1.274-5T(c)(1)). “In sum, it is
possible that documentary evidence such as
receipts coupled with credible testimony can
meet section 274's strict requirements.” Id.
(citation omitted).
Here, Mr. Hart
has failed to produce contemporaneous written
records for his travel expenses or fuel costs to
support his claimed travel and mileage business
expense deductions. The records produced by Mr.
Hart appear to include some receipts for travel
expenses but no supporting documentation showing
the business purpose for the claimed travel
expenditure. Furthermore, the records do not
substantiate the claimed deductions as there are
no contemporaneous written records to support
the business purpose for the claimed expenses as
required by the Code and its governing
Regulations. This finding is undisputed as Mr.
Hart's own testimony at his deposition admitted
to his poor record keeping during the time and
that his travel expenses and mileage claims were
estimates. (Dkt. 76-1 at 160–62.) For the 1998
return in particular, Mr. Hart testified that
his record keeping for his business trips “was
not very good” and that when he amended that
return he used his calendars and different
receipts he had in the office to account for his
business travels. (Dkt. 76-1 at 160.) He was
not, however, able to recall how he
distinguished between his business trips for
Alpine Northwest, his engineering business, and
his book. (Dkt. 76-1 at 161–65.) Mr. Hart has
not disputed these facts, pointed to specific
facts showing that there is a genuine issue for
trial, or come forward with any records and/or
evidence to rebut the United States' showing in
its Motion as to the “Car and Truck Expenses.”
As such, the Court grants summary judgment as to
the claimed business expense deductions for “Car
and Truck Expenses” for the years 1998–2000 and
2002–2004 that Mr. Hart claimed on his tax
returns.
_________________________
Links:
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IRS issues 2019 depreciation dollar limits
for passenger automobiles
Rev Proc 2019-26, 2019-24
IRB
IRS has issued the Code Sec. 280F depreciation limits for business
passenger automobiles placed in service by the taxpayer in 2019. IRS has
also released the annual income inclusion amounts for such vehicles
first leased in 2019.
Code Sec. 280F, as modified by the Tax Cuts and Jobs Act (TCJA, P.L.
115-97, 12/22/2017), imposes limitations on the depreciation deduction
allowed for passenger automobiles for the year the taxpayer places the
vehicle in service and for each succeeding year.
The TCJA modified Code Sec. 168(k) to extend the additional (bonus)
first-year depreciation deduction for qualified property acquired and
placed in service after Sept. 27, 2017, and before Jan. 1, 2027.
Generally, the TCJA allows a 100% bonus first-year deduction of the
adjusted basis of qualified property acquired and placed in service
after Sept. 27, 2017, and before Jan. 1, 2023. In later years, the
first-year bonus depreciation deduction declines approximately 20% per
year, as follows:
-
80%
for property placed in service after Dec. 31, 2022, and before Jan.
1, 2024.
-
60%
for property placed in service after Dec. 31, 2023, and before Jan.
1, 2025.
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40%
for property placed in service after Dec. 31, 2024, and before Jan.
1, 2026.
-
20%
for property placed in service after Dec. 31, 2025, and before Jan.
1, 2027.
In the case of a passenger automobile, for qualified property acquired
by the taxpayer before Sept. 28, 2017, and placed in service by the
taxpayer during 2019, Code Sec. 168(k)(2)(F)(iii) increases the
first-year depreciation allowed under Code Sec. 280F by $4,800.
For qualified property acquired and placed in service after Sept. 27,
2017, Code Sec. 168(k)(2)(F)(i) increases the first-year depreciation
allowed under Code Sec. 280F by $8,000.
2019 depreciation limits for passenger autos.
The following are the annual depreciation dollar caps for vehicles that
are subject to the limits in Code Sec. 280F and are placed in service by
the taxpayer during calendar year 2019.
The depreciation limits for passenger automobiles acquired by the
taxpayer before Sept. 28, 2017, and placed in service by the taxpayer
during 2019, to which the Code Sec. 168(k) bonus first-year depreciation
deduction applies, are:
-
$14,900 for the placed-in-service year;
-
$16,100 for the second tax year;
-
$9,700 for the third tax year; and
-
$5,760 for each succeeding year.
The depreciation limits for passenger automobiles acquired by the
taxpayer after Sept. 27, 2017, and placed in service by the taxpayer
during calendar year 2019, to which the Code Sec. 168(k) bonus
first-year depreciation deduction applies, are:
-
$18,100 for the placed-in-service year;
-
$16,100 for the second tax year;
-
$9,700 for the third tax year; and
-
$5,760 for each succeeding year.
For passenger automobiles placed in service during calendar year 2019,
for which the taxpayer is not entitled to Code Sec. 168(k) bonus
depreciation, the depreciation limits are:
-
$10,100 for the placed-in-service year;
-
$16,100 for the second tax year;
-
$9,700 for the third tax year; and
-
$5,760 for each succeeding year.
Leased income inclusion tables
A
taxpayer that leases a business auto may deduct the part of the lease
payment representing business/investment use. If business/investment use
is 100%, the full cost of the lease is deductible. However, lessees must
include a certain amount in income for each year of the lease to
partially offset the lease deduction. (Code Sec. 280F(c)) The income
inclusion amount varies with the initial FMV of the leased auto and the
year of the lease and is adjusted for inflation each year.
Rev Proc 2019-26 also provides the income inclusion tables for passenger
autos for which the lease term begins during calendar year 2019 and the
vehicle has a FMV over $50,000. Lessees of passenger automobiles must
use these tables to determine the inclusion amount for each tax year
during which the passenger auto is leased.
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