Reduce Your Automobile Taxes

Automobile and vehicles tax breaks used to reduce your taxes. Knowledge is power when you know the rules!

I consistently get this question from my Phoenix CPA firm and national tax preparation firm: “my vehicle has been fully depreciated. I heard somewhere where IRS is allowing 56.5 cents per mile for vehicle mileage. I want to start taking cents per mile”.

Unfortunately you are not allowed to start taking cents per mile if you have ever taken the actual method which includes writing off depreciating.

What is the actual method used for your vehicle whether it be a car, SUV or truck?

You are allowed the business percentage of depreciation, gasoline, oil and lube, repairs, insurance, car washes, etc.

What if you buy a used truck costing just $4,000 to haul tables and chairs to marketing events? If you never use the actual method including depreciation, you can use the cents per mile method.

What if the used truck cost $44,000 and for some reason your old tax accountant had you take cents per mile. Can you start depreciating the vehicle? Yes.

So, in short, you can change from the cents per mile to the actual method which allows you to deduct the business percentage of your vehicle including depreciation but you can never change from the actual method to the cents per mile method.

What if you do not keep an auto log or some other record to prove your business versus your personal mileage?

Automobile use not substantiated by adequate records or by other sufficient corroborating evidence is nondeductible personal use. [Temp. Reg. §1.274-5T(b)(1)] Standard mileage rate.

If you use your vehicle for both business and personal use, expenses must be allocated in proportion to the number of miles driven during the year for each purpose

What if you lease a vehicle? Answer: The standard mileage rate must be used for the entire lease period (including renewals). (Rev. Proc. 2010-51)

There is a false rumor that you can avoid the commuting mileage problem by driving to the bank first or the post office. Taxpayers have lost whenever the IRS has challenged this vehicle commuting issue.

I happen to have a way of avoiding the commuting problem that I share with clients to minimize personal miles from commuting.

One red flag that the IRS pounces on is when zero personal use of the automobile is added back to the W-2 of the owner of a business.

Under IRS Rev. Ruling 99-7, deducting local transportation when the residence is the principal place of business is 100% deductible. Taxpayers whose residences qualify as their principal place of business (under the home office rules) can deduct local daily transportation expenses incurred going between their residences and other work locations in the same trade or business, including regular or temporary work locations and regardless of the distance.

Let us give you an example:

Bob is a self-employed management consultant for a variety of small businesses. He maintains a home office used regularly and exclusively to set up appointments, store client files and develop management reports for his business clients. Bob does most of his consulting work by telephone or mail from his home office. His home office qualifies as his principal place of business. He routinely uses his personal auto, traveling from his home to meet with prospective and current business customers or their representatives.

Because Bob’s home is his principal place of business, his expenses to travel from his residence to see clients, to work at other regular or temporary work locations, or to perform other business duties are deductible business expenses.

But did you know that consultants and other business owners who travel to a client’s office each day for less than one year come under the temporary work locations rule?

Let us say Bob acts as a part time Chief Executive Officer for three companies during 2014. Each job is just temporary until each company can find a permanent CEO. Since Bob does not have a fixed place of business, the entire city is considered his workplace under IRS Rev. Ruling 99-7. Therefore, Bob can deduct the cost of transportation to a temporary work site outside of the metropolitan area where he regularly lives and works!!

Example:

But let us change the facts that Bob owns three retail stores throughout the city. Bob spends approximately 10 to 15 hours a week in a room at her house used for her business, and spends 30 to 35 hours per week at the three branch locations. Bob’s office at home does not qualify as his principal place of business unless Bob knows how to properly set up the home office which we share with our clients.

Bob’s travel between his residence and any of the three branch locations where he regularly works is commuting and is not deductible. However, if Bob’s work temporarily takes him to another location (whether inside or outside of the metro area), the transportation from his residence to that location would be deductible. Also, Bob may deduct any transportation between the three branch locations where he regularly works on a given day.

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About Jeffrey Brooks

Jeffrey Brooks, CPA, CFP, MBA since 1976 has specialized in helping clients save significant taxes, help businesses increase their cash flow, revenues and profits while increasing their control and satisfaction. Jeff and his accounting firm sincerely cares about the happiness of his clients.

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JBrooks Wealth Advisors, PC.

Certified Public Accountant
Address: 4647 N 32nd Street, Suite B245
Phoenix, Arizona 85018
Phone: 602-292-2009
Email: jeff@jbrookswa.com