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Jon Andrews
Jon Andrews, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 3118
Experience:  I deal with all levels of tax planning and controversy - from the ordinary to the complex.
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Car rental

Customer Question

Hi! My cousin wants to do his taxes and he has a couple of questions regarding some car expenses. He is a cab driver, and he wants to know what form or what schedule to use to record the car expenses he has. He rents the taxi for a weekly fee. In addition, he pays base or distpaching fees.
Thanks for your help.
Submitted: 11 years ago.
Category: Tax
Expert:  Jon Andrews replied 11 years ago.
Jon Andrews, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 3118
Experience: I deal with all levels of tax planning and controversy - from the ordinary to the complex.
Jon Andrews and 2 other Tax Specialists are ready to help you
Customer: replied 11 years ago.
Reply to Jon Andrews's Post: thanks for your answer, but I was expecting a more detailed answer. Like I said, he pays an individual a rental fee on a weekly basis, and he pays for the repairs, gas and tolls. Because as far I as know, if he pays for any machine or vehicle rental and exceeds 30 days, there are some limitations or restrictions. And what if he doesn't have any evidence because he pays cash.
Expert:  Jon Andrews replied 11 years ago.

I am not sure what you mean by "pays for any machine or vehicle rental and exceeds 30 days, there are some limitations or restrictions".


Each of the items that you have mentioned, rental fee, repairs, gas, and toll charges, are deductible tot he extent that they are business related.


If he doesn't have evidence because he paid cash, that is a problem of its own. He should have kept, and in the future should keep, a log book where those items are written down when they are paid. As far as the rental fee is concerned, he should be able to get documentation from the provider of that amount. As for the other items, he should make realistic estimates and understand that if the IRS questions any of it, the burden of proof will be on him to prove that he is entitled to the deductions.


In the future, besides the log book, he should get an expanding file and keep receipts for gas, repairs, etc. in that throughout the year. Records for toll charges should be satisfied by the log book.


He should keep in mind that the expenses should be in line with the income reported. For example, if he reports $25,000 of gross income and $10,000 of toll charges, that does not reflect reality and would likely cause his return to be questioned.


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Customer: replied 11 years ago.
Reply to Jon Andrews's Post: Hi Jon,
thanks for answering, but I was expecting a more detailed answer. The problem is that he pays an individual a rental fee on a weekly basis, and he pays for repairs, base (distpaching fees, gas and tolls. And as far as I know, there are certain provisions for rentals that go beyond 30 days. Does this apply to his case, or everything can be recorded on schedule "C:.
Expert:  Jon Andrews replied 11 years ago.

Is your question regarding the "rental fee" that he pays to the individual? and whether that might be considered a purchase instead of a rental?


jon 

Customer: replied 11 years ago.
Reply to Jon Andrews's Post: yes!!
Expert:  Jon Andrews replied 11 years ago.

OK - I can see where that might be an issue, but I don't think that it should be unless, after some point in the future, the car becomes his.


For example, if he pays the rental fee for 3 years and then owns the car to do with as he pleases, then that would be a problem.


If he quits the taxi driver business next week and cannot keep the car and does not get reimbursed any of his "rental fee", it seems pretty clear that the rental fee is exactly that and should be deductible.


If there is any way that he can wind up owning the car, other than walking in and plopping down $20,000 or whatever, then he may have a problem. Otherwise, he should not.


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