Posted by: Garcia & Cuadra, PA | January 11, 2016

Business & Personal Use of Automobiles

Tax Planning AutomobilesTaxpayers who use a passenger automobile, including “luxury” automobiles, in the pursuit of business or in an income-producing activity can deduct certain costs related to its acquisition and maintenance. The deductible items include gas, oil, tolls, parking fees, insurance, and depreciation. All of the expenses must be allocated between business use and nondeductible personal use. Use of an automobile for commuting to and from work is a personal, nondeductible use. You can deduct actual expenses incurred as a result of the business use or you can use the standard mileage rate.

Instead of figuring actual expenses you can use the standard mileage rate for travel. The standard mileage rate in 2015 for the use of a car (also vans, pickups or panel trucks) was 57.5 cents per mile. The standard mileage deduction is in lieu of deducting operating and fixed costs of the automobile. Depreciation is a component of the standard mileage rate; therefore, the basis in the automobile must be reduced by the depreciation allowed. However, if you use the standard mileage deduction, you can still deduct parking fees, tolls, and interest relating to the automobile’s purchase, and state and local taxes. Up to four cars used simultaneously can be computed using the standard mileage rate beginning after 2003.

If you want to use the standard mileage rate for a car in any year, you must choose to use it in the first year you place the car in service in your business. After the first year you can optimize to deducting actual expenses.
If you choose to deduct actual expenses, you can deduct such items as oil, gas, insurance, depreciation, etc. However, there are special rules that apply if you use your car 50% or less in your business. Generally, you must use a car more than 50% for business to qualify for the §179 deduction (election to treat a portion of the cost of the car as an expense – see below) and the depreciation deduction. Using your car as an employee is treated as business use only if that use is for the convenience of your employer and required as a condition of your employment.

Generally, the cost of an automobile is a capital expenditure, however, you can elect to treat a portion of the cost, subject to yearly limits, as an expense in the year the automobile is placed in service. To make this election, you must use the automobile more than 50% for business purposes. The yearly limit allowed is determined by the year the automobile is placed in service and the percentage of business use. For example, if an automobile is placed in service in 2015, the expense deduction and the depreciation deduction cannot be more than $3,160 for the first year (the placed-in-service year); $5,100 for the second year; $3,050 for the third year, or $1,875 for any year thereafter.  A deduction for additional bonus depreciation for the first year of use may apply.  This limit is reduced if the taxpayer uses the automobile more than 50% but less than 100%, for business use.  Vans and trucks placed in service after 2014 are subject to a higher limitation than passenger automobiles.  $3,460 for first year; $5,600 for second year; $3,350 for third year; and $1,975 for each succeeding year.

You may also compute the automobile expense deduction based on a mileage allowance. A mileage allowance is an amount paid by an employer for expenses he reasonably anticipates the employee will incur, calculated not to exceed the amount of the expenses, and paid at the applicable standard mileage rate, a flat rate, or in accordance with any IRS-specified rate or schedule. The allowance may be paid periodically at a fixed rate, at a cents-per-mile rate, at a variable rate based on a stated schedule, at a rate that combines any of these rates, or on any other basis that is consistently applied and is in accordance with reasonable business practice.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Categories

%d bloggers like this: