Today TaxMama hears from Lynn in Indiana, who says “I have 2 cars, a Corvette with a $537 per month lease payment and a Ford Escort that’s all paid off. If I work at 2 offices as an independent contractor, do I have to travel to both in one day to write off mileage? How should I handle my auto expenses?”
Dear Lynn,
First of all you can find information in IRS publication 463 about auto expenses.
https://www.irs.gov/publications/p463/ch04.html#d0e3039
It will take too long for me to go into depth on auto expenses, with all nooks and crannies in the law. But let me give you the short version.
Whenever you use either car, keep a record of the miles you drive and whether they are personal or business miles.
If your business’s office is at home, driving from home to a client’s office is a business expense. Driving from one client to another is a business expense. Picking up groceries on the way home is personal mileage from the grocery store to home.
At then end of the year, you’ll total up the miles on each car. Then you’ll take the total business miles and divide them by your total miles to get the percentage to apply to all your actual expenses – if you’re going to deduct the actual costs associated with a specific car. Or you’ll just use the IRS mileage rates x the total business miles driven on the specific car.
When you’re using the Escort, you may depreciate its fair market value at the time you put it into business use, which may be practically nothing. Add the business percentage of the depreciation to the gasoline, insurance, repairs and maintenance and see if that’s higher or lower than the mileage method.
With the leased Vette, instead of depreciation, you’ll pick up the lease. And you will need to add back in the lease exclusion. (see Pub 463 for the explanation) You’ll still be able to use the business percentage of all the costs I just described.
There are nuances that someone experienced can help you with. So, please consider picking up a copy of Small Business Taxes Made Easy: Chapter 8 discusses vehicle expenses in depth. Or Jan Zobel’s Minding Her Own Business: The Self-Employed Woman’s Essential Guide to Taxes and Financial Records Chapter 25 is all about using your car for business.
You’ll find them both here in TaxMama’s Classic Amazon shop
https://taxtwist.com/element.php?varset=s:13-pm:p-se:262-e:93
And once you’ve read them, and you know what questions to ask, please schedule an appointment with a good local tax professional to help you set your business properly.
Because you are in business. You do realize that, right? Good. You’re off to a good start with two steady clients.
And remember, you can find answers to all kinds of questions about auto expenses and all kinds of other tax issues, free. Where? Where else? At TaxMama.com
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- Ask TaxMama :: Where taxes are fun and answers are free
- TaxTwist.com :: Where TaxQuips will be moving & You can add your comments
- IRS Publication 463 :: Chapter on Auto Expenses
- Small Business Taxes Made Easy :: Chapter 8 – Vehicle Expenses
- Minding Her Own Business: The Self-Employed Woman’s Essential Guide to Taxes and Financial Records :: Chapter 25 is all about using your car for business.
- File Download (2:45 min / 0.6 MB)
