Today TaxMama® hears from JJ in the TaxQuips Forum, with an unusual situation. “I leased a car this fall. I paid for the entire sum up front, in a single payment. What is the correct deduction for federal taxes?”
What does that mean? You paid for the entire 2 or 3 year term up front?
Why? If you could afford that, why not buy a car instead? Never mind. None of my business.
Every once in a while, I read things or hear advice on the radio about prepaying expenses. And the experts don’t make it really clear that when you prepay a year or two worth of expenses, you don’t get that massive deduction. You only get a deduction for the expenses that were due within the year you made the payment – 3 or 4 months worth. All that other money is wasted for now. But you’ll get to use in the future. For instance:
For 2012, you may deduct the business use percentage of that part of the cost that would have applied to 2012.
For 2013, you may deduct the business use percentage of that part of the cost that would have applied to 2013.
For 2014, you may deduct the business use percentage of that part of the cost that would have applied to 2014.
Are you getting the picture? You don’t get an extra deduction for all the advance payments. You still don’t get to deduct more than 12 months at a time – ever.
And you don’t get the full 12 months in 2012, since you only leased it for 3-4 or 5 months.
Besides, remember, you can only deduct the BUSINESS use percentage. And you need to reduce that by the Lease Inclusion Amount for your particular vehicle – even when you use the car 100% of the time. Be prepared to prove your TOTAL Mileage and your BUSINESS miles. So keep really good records.
And remember, you can find answers to all kinds of questions about vehicles and leasing and other tax and business issues, free. Where? Where else? At www.TaxMama.com.[Note: If you were subscribed to the e-mailed version of TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]
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