Auto & vehicle mileage rate will increase for 2013. How to increase your write off deductions of autos & vehicles in 2012

By Jeffrey Brooks, CPA, CFP, MBA for Jbrooks Wealth Advisors, PC, a Professional CPA and CFP Firm 602-687-9900 x101 Please consult with your professional tax CPA regarding your specific circumstances!

Christmas and New Year’s holidays are good times to increase your business use of your vehicle. Did you know that you must pick up the personal use of your auto as INCOME if you own 2% or more of a partnership or S Corporation? You might say this does not apply to me because I do not have a partnership or S Corporation because I own a LLC. Although you might own a LLC, IF your LLC files a form 1120S or a form 1065, you need to pick up the personal use of your auto as part of your W-2 for S Corporation 1120S or guaranteed payments for a partnership 1065.

Now is a good time, to contact business associates who live in different cities such as L.A. to meet with them and also mix some personal use with the family. If you drive with the family to L.A. to go to Disneyland and schedule business related time, you might be able to treat the miles as business miles. Increasing business miles allows you through your business to write off your vehicle.

Most clients use the actual method because they can get larger tax deductions due to deducting depreciation, insurance, gasoline, oil & lube, repairs, licenses instead of the cents per mile method.

However, some clients have two vehicles. One is an expensive vehicle that uses the actual method. The second vehicle is used less frequently so the cents per mile method results in higher deductions that the actual method.

IRS has announced that the optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) will increase by 1¢ to 56.5¢ per mile for business travel after 2012. This rate can also be used by employers to reimburse tax-free under an accountable plan employees who supply their own autos for business use, and to value personal use of certain low-cost employer-provided vehicles. The rate for using a car to get medical care or in connection with a move that qualifies for the moving expense will also increase by 1¢ to 24¢ per mile.
Employers that require employees to supply their own autos may reimburse them at a rate that doesn’t exceed the business mileage allowance for employment-connected business mileage, whether the autos are owned or leased. (Rev Proc 2010-51, Sec. 9.01) The reimbursement is treated as a tax-free accountable-plan reimbursement if the employee substantiates the time, place, business purpose, and mileage of each trip. Additionally, an employee’s personal use of lower-priced company autos may be valued at the optional mileage allowance if the conditions specified in Reg. § 1.61-21(e)(1) are met.
A separate rate applies for using a car to get medical care or in connection with a move that qualifies for the moving expense deduction. (Rev Proc 2010-51) The mileage rate for driving an auto for charitable use (14¢ per mile) is a statutory rate that’s not adjusted for inflation. (Code Sec. 170(i))
IRS generally adjusts the standard mileage rate annually, based on a yearly study of the fixed and variable costs of operating an auto. However, IRS has made mid-year adjustments in certain years when necessary to better reflect the real cost of operating an auto in light of rapidly rising gas prices.

What are the advantages of using the standard mileage rate include:
• Mileage rate users need not keep a record of actual expenses, or retain receipts where required. A record of the time, place, business purpose and number of miles traveled suffices.
• If an auto’s business expenses are deducted via the mileage rate, it is not subject to the Code Sec. 280F dollar caps or the special rules that apply if qualified business use does not exceed 50% of total use.
• The mileage rate method may yield bigger deductions than the actual expense method for a thrifty, high-mileage model.
One of the disadvantages to using the standard mileage rate is that the mileage rate method may produce a smaller deduction than would be obtained by claiming actual business-connected operating expenses plus depreciation (or lease payments). Also, use of the mileage rate method prevents the taxpayer from claiming regular MACRS deductions (subject to the luxury auto dollar caps) for the auto in later years.
Notice 2012-72 provides that the standard mileage rate for transportation or travel expenses is 56.5¢ per mile for all miles of business use (business standard mileage rate) for 2013.

The standard mileage rate is 24¢ per mile for use of an auto (1) for medical care described in Code Sec. 213; or (2) as part of a move for which the expenses are deductible under Code Sec. 217. The standard mileage rate is 14¢ per mile for use of an auto in rendering gratuitous services to a charitable organization under Code Sec. 170. (Notice 2012-72, Sec. 2)
As Notice 2012-72 notes, taxpayers using the standard mileage rates must comply with Rev Proc 2010-51. Accordingly, the standard mileage rate may not be used for a purchased auto if:
• It was previously depreciated using a method other than straight-line for its estimated useful life;
• A Code Sec. 179 expensing deduction was claimed for the auto;
• The taxpayer has claimed the additional first-year depreciation allowance;
• The taxpayer depreciated it using MACRS under Code Sec. 168; or
• The taxpayer is a rural mail carriers who receive qualified reimbursements. (Rev Proc 2010-51)
A taxpayer who uses the mileage allowance method for an auto he owns may switch in a later year to deducting the business-connected portion of actual expenses, so long as he depreciates it from that point on using straight-line depreciation over the auto’s remaining life. The depreciation deductions would still be subject to the Code Sec. 280F dollar caps. (Rev Proc 2010-51, Sec. 4.05(3))
Depreciation. For 2013, Notice 2012-72, Sec. 3, provides that the depreciation component of the mileage rate for autos used by the taxpayer for business purposes is 23¢ per mile. (It was 23¢ per mile for 2012; 22¢ for 2011; 23¢ for 2010; and 19¢ per mile for 2009) The depreciation component reduces the basis of the auto for gain or loss purposes. (Rev Proc 2010-51, Sec. 4.04)
FAVR plans. A taxpayer may use the mileage allowance method for a leased auto only if he uses that method (or a fixed and variable rate (FAVR) allowance method) for the entire lease period. (Rev Proc 2010-51, Sec. 4.05(2)) Employers may use a FAVR allowance method to reimburse employees who supply their own cars for business (whether the cars are leased or owned). For 2013, the standard auto cost used to compute the FAVR allowance cannot exceed $28,100 (up from $28,000 for 2012). For trucks or vans, the 2013 standard auto cost used to compute the FAVR allowance cannot exceed $29,900 (up from $29,300 for 2012). (Notice 2012-72, Sec. 4)
When the new rates are effective. The revised standard mileage rates in Notice 2012-72 (56.5¢ for business; 24¢ for medical or moving) apply to deductible transportation expenses paid or incurred for business, medical, or moving expense purposes on or after Jan. 1, 2013, and to mileage allowances or reimbursements that are paid to an employee or charitable volunteer (1) on or after Jan. 1, 2013, and (2) for transportation expenses paid or incurred by the employee or charitable volunteer on or after Jan. 1, 2013.
Please let me know if you have any questions. Thank you very much! Jeff

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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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