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Lev
Lev, Tax Advisor
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Experience:  Taxes, Immigration, Labor Relations
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I own a small business. I just bought a new car that I will

Resolved Question:

I own a small business. I just bought a new car that I will use as a business expense about 60-70% of the time. I had the business buy it. How does this exactly work when I calculate the deduction?
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

Lev :

Hi and welcome to our site!
In most situations when the car is used for both business and personal purposes - you may deduct only a business portion of transportation expenses.
Most taxpayers select to account for transportation expenses based on the standard mileage rate - so you need simply leek a log of business trips - and will multiply the total number of miles driven for business purposes by that rate.

Lev :

Beginning on Jan. 1, 2013, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) is 56.5 cents per mile for business miles driven.
As an alternative - you may deduct your actual car expenses. If you choose that method - you will need to account for all actual car expenses - gasoline, maintenance costs, taxes, depreciation, etc - and multiply that amount by the percentage of business use.
The percentage of business use is calculated as number of miles driven for business purposes divided by the total miles the car was used during the tax year.
In most situations - using standard mileage rate is more beneficial and requires less paperwork - that is why most taxpayer opted to use that method.
Regardless which method you choose - only business portion of car expenses may be deducted - personal portion is never deductible against your business income.

Lev :

Reporting your deductions would be based on how you report your business income and expenses and if your business is a separate entity for tax purposes.

Customer:

Ok, I would like to do the standard mileage rate, but how does it figure in when I already started by paying for the car with business money? How do you subsequently start using standard mileage when it kind of seems like I already started on a path toward using "actual expenses"?

Customer:

Also, how does my business continue to pay for the monthly car payments and still use the standard mileage rate?

Lev :

Because the car is used for both purposes - business and personal - you are out to keep record of miles used for business purposes.
The choice to deduct actual expenses or to use the standard mileage rate is made when you prepare your tax return.

Customer:

Ok, so if i start out paying 10k from the business, and use it 60% for business purpose, I deduct 6k for my personal taxes

Lev :

Using "business money" to pay for the car doesn't mean that payment is deducted.
However the way to account for "business money" is based on what business structure you are using.

Customer:

it is an s-corp

Lev :

Is the car titled to the S-corporation?

Customer:

no

Lev :

So - the car is titled to you - and you are responsible for payments.
If S-corporation makes payments for you - these payments are treated as distribution to you.

Customer:

ok, so i count it as wages?

Lev :

Because these are payments for you - these payments are not deductible by S-corporation - but business part of car expenses may be deducted.

Lev :

If S-corporation makes payments for you - these payments are treated as distribution to you.
You may treat these payments as wages - that is your choice.

Lev :

If there is a loan for the car - you may deduct interest on that loan - business part only.

Customer:

so let's say i treat it as wages and i use standard mileage rate. if the s corp paid 10k down for car. and makes the monthly payment of $200. and i use the car 60% for business, how do i calculate this?

Lev :

You may not simply deduct car payments. What you need to do - choose which way you want to deduct transportation expenses - actual expenses OR standard mileage rate - you may not use both.
If you choose the standard mileage rate - you take the amount of miles you drove for business purposes - multiply that by 56.5 cents per mile for business miles driven - and that amount may be deducted by S-corporation - and S-corporation will reimburse you that amount for your employee business expenses and will not report that amount as wages.

Lev :

In additional - S-corporation may reimburse you 60% of interest of the loan - not of the total payment amount - but only for the part attributable to the interest charges.

Lev :

For documentation purposes - you should keep a daily log of miles driven for business purposes and regularly (let's say every month) provide that log to your S-corporation. S-corporation should keep your travel logs as supporting document with other tax related papers.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 23251
Experience: Taxes, Immigration, Labor Relations
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