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Lori Malto
Lori Malto, Financial Advisor
Category: Finance
Satisfied Customers: 2
Experience:  Financial Service Representative
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Car for business use

Customer Question

I purchased a car on Oct. 2, 2004 for business use amounting to $31,500 (2004 Volvo Station Wagon). My business started in January 2005. As of 1/1/05, the loan balance was 28,055.41. My monthly pmt is $413.18 for 84 months. How would I show this on my books? Please let me know if there are any other info you need. thank you.
Submitted: 11 years ago.
Category: Finance
Expert:  Greg replied 11 years ago.
What kind of business? (corporation. sole prop., partnership). You must be able to show that the vehicle is used exclusively for business to claim all of the costs. Otherwise, you will have to 1: document all miles driven for business purposes and take the mileage deduction method on your taxes, keeping all receipts for tolls, and other expenses (not including gas, since it's included in the mileage deduction) or, 2: keep the same records and figure a percentage that the vehicle is used for business and multiply your total vehicle costs by that percentage to figure your basis for deduction. If you're doing business as a corporation, be sure the vehicle is not used for personal use if it's part of the corporations assetts.
Customer: replied 11 years ago.
Reply to Greg's Post: The business is sole prop. The business that I have is a care home facility. Would the monthly payment be considered as an expense to the business since the vehicle is for business use?
Expert:  Greg replied 11 years ago.
If you can show that the car is used in the business, then you can deduct the payments, as well as other expenses.

Here is a website that discusses automobile deductions - in California in particular.

http://www.wwlaw.com/auto.htm

You will need to keep accurate records, whichever method you use for filing.

I hope that helps.

Greg
Customer: replied 11 years ago.
Reply to Greg's Post: My first question was - how to show the car in my books. Will the loan amount be a debit to the fixed asset and credit to the liability account?
Expert:  Cindy replied 11 years ago.
When setting an asset up on your books, you should debit the fixed asset for the cost of the item. Or you could use the market value at time you converted it to business use. You said that you initially purchased it for business, but that your business just did not start until the beginning of the following year. Since only 3 months had gone by since you purchased the automobile I think you are okay to use cost in this situation. You should then credit the liability account for the principal outstanding at the date you make the journal entry. The difference between the cost and the liability will be a credit to opening balance equity or some other equity account. You will also need an amortization schedule so that when you make monthly payments on the automobile, you can code the proper amount to interest expense and reduce the liability by the principal amount of the payment. I can tell from your question that you have some idea of how this works, but because I don't know how much you do know about accounting, I am not elaborating more as I don't want to send you unnecessary information. Let me know if you need further information. I can tell you how to create an amortization schedule if need be.
Customer: replied 11 years ago.
Reply to Cindy's Post: Can you please tell me how to create an amortization schedule? thanks
Expert:  Cindy replied 11 years ago.
It would probably be easier to just send you one as an example. I can send to your e-mail address if you like.
Customer: replied 11 years ago.
Reply to Cindy's Post: Yes, please send an example. Thank you
Customer: replied 11 years ago.
Please help with the ammortization schedule. thank you
Expert:  Lori Malto replied 11 years ago.
im not quite sure about how you would show on your books, but one thing you need to do, is keep track of the miles you put on and you will be able to have a tax write off of around .27 per mile or around there!!! If that is your main business vehicle, that will really add up and save you lots of $$.
I hope this helped you
Lori