Today TaxMama hears from Kelli in Michigan with this question. “I am currently self-employed and will have over $3,000 in mileage charges due on my lease when I turn the car in next year. When I file my 2008 tax returns, however, I will no longer be self-employed. Although I won’t be billed and pay until 2009, can I deduct the charges on my 2008 tax return based upon the miles driven in 2007 & 2008 for business?”
Ouch. That’s a big excess charge. And one of the reasons I don’t like leases.
No, you can’t deduct charges this year – that you’re not paying until next year. You’re a cash-basis taxpayer. That means you take deductions for expenses in the year you pay them.
If you really want to deduct the costs this year, go to your leasing company and ask them if you can prepay the mileage this year? Perhaps they will even give you a discount if you pay in advance, who knows. Do that, and the expense will become a 2008 cost instead of a 2009 cost.
Only be careful – if that mileage penalty is for personal mileage, it’s not going to be deductible at all. So if that penalty is based on the total number of miles driven – and the excess miles take place after you close your business, they won’t be business miles. They will be personal miles – and you’ll be out of luck.
Why not trade in the car when you close your business?
And remember, you can find answers to all kinds of questions about lease expenses and other tax issues, free. Where? Where else? At TaxMama.com[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]
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