By Luci Roseman
Taxpayers using their vehicle for business purposes can choose to use the standard mileage rate or deduct the actual costs of using the vehicle.
The standard mileage rate is the simpler method and requires less recordkeeping. The taxpayer must keep a mileage log outlining the date, miles, destination and business purpose of each trip, and total miles driven during the year. The taxpayer should also keep any receipts for business related parking and tolls as these are deductible when using the standard mileage method. In 2012 the standard mileage rate for business miles will remain at 55.5 cents per mile. If the vehicle is owned by the taxpayer and the standard mileage method is chosen, the actual cost method can be chosen in a later year. If the vehicle is leased and the standard mileage method is chosen, the taxpayer must stick with that method for the life of the vehicle.
The actual cost method allows the taxpayer to deduct the actual expenses of owning and operating the vehicle including gasoline, oil, repairs, maintenance, lease payments, insurance, registration fees and depreciation. The percentage of these costs that are deductible is determined by the percentage of business miles to total miles driven. A mileage log and the receipts for any expenses that are to be deducted should be kept for back-up purposes. As with the standard mileage rate method, the taxpayer should also keep any receipts for business related parking and tolls as these are fully deductible. If the actual cost method is chosen it cannot be changed; the taxpayer cannot switch to the standard mileage method in another year.
As mentioned in the previous blog titled "Business Vehicle Expenses - Depreciation Allowed," depreciation always reduces the basis in the vehicle, so when the vehicle is sold, the calculation of the gain or loss will be affected by the amount of deprecation taken or allowed to be taken. If you use the standard mileage method for vehicle expenses, the vehicle's basis is reduced by a certain amount per business mile which represents the portion of the standard mileage rate treated as depreciation, but not below zero.
If you have any questions or would like more information, please contact Mary Knigge at (302) 656-6632. Visit our website for more information about our firm and the services we provide - www.coverrossiter.com.
Cover & Rossiter is one of the area's oldest and most respected certified public accounting and advisory firms. Focused on being the best rather than the biggest, we assembled an outstanding team with a wide range of skills. It is our goal to provide our clients with innovative services designed to maximize profitability and minimize tax burden. Our advice is current… our client focus timeless.
Showing posts with label Depreciation. Show all posts
Showing posts with label Depreciation. Show all posts
Thursday, July 19, 2012
Wednesday, July 11, 2012
Business Vehicle Expenses - Depreciation Allowed
By Luci Roseman
Taxpayers are able to depreciate their vehicle if it is used for business purposes. Generally the 200% Declining Balance Method is used over a five year life. This method results in greater deprecation at the beginning of the five-year period and less at the end. Taxpayers may also elect to use the Straight Line or 150% Declining Balance Methods over a five-year life. Assuming the business use percentage remains constant, choosing the Straight Line Method will result in even depreciation over the 5 year life.
Taxpayers may also be allowed Section 179 and/or bonus depreciation deductions. In order to qualify for these deductions, the vehicle must be purchased and placed into service in the same year the deduction is to be claimed, and greater than 50% of the miles driven must be business miles. The Section 179 deduction can be taken on new or used equipment and is limited to $139,000 in 2012. This deduction is reduced dollar for dollar if you place more than $560,000 worth of equipment in service during the tax year. In other words, if you place $699,000 worth of assets into service during 2012, your Section 179 deduction will be zero; if you place $600,000 worth of assets into service during 2012, your total Section 179 deduction will be limited to $99,000. Besides the limitation just mentioned, the business also must have income in the tax year for this deduction to be claimed or it is carried forward. The bonus depreciation deduction is to be used on new equipment only and allows up to 50% of the purchase cost to be deducted in 2012.
The above deductions are limited based on the type of vehicle and its gross vehicle weight (GVW). For example, in 2012 a car with GVW of 6,000 pounds or less will be limited to $11,160 of total depreciation if bonus or Section 179 depreciation is utilized or $3,160 regular depreciation if neither of these special depreciation options is elected or the taxpayer does not qualify for them. For trucks and vans with loaded GVW of 6,000 pounds or less, the 2012 total depreciation limits utilizing special depreciation and regular depreciation are $11,360 and $3,360, respectively. The depreciation amounts are also limited by the percentage of business miles versus total miles driven during the year. For example, if based on 100% business use the depreciation allowed is calculated to be $1,000 and the taxpayer drove 4,000 business miles and 10,000 total miles. The depreciation deduction would be 40% or $400.
As always, depreciation reduces the basis in the vehicle, so if the vehicle is sold, the calculation of the gain or loss will be affected by the amount of depreciation taken.
If you have any questions or would like more information, please contact Mary Knigge at (302) 656-6632.
Taxpayers are able to depreciate their vehicle if it is used for business purposes. Generally the 200% Declining Balance Method is used over a five year life. This method results in greater deprecation at the beginning of the five-year period and less at the end. Taxpayers may also elect to use the Straight Line or 150% Declining Balance Methods over a five-year life. Assuming the business use percentage remains constant, choosing the Straight Line Method will result in even depreciation over the 5 year life.
Taxpayers may also be allowed Section 179 and/or bonus depreciation deductions. In order to qualify for these deductions, the vehicle must be purchased and placed into service in the same year the deduction is to be claimed, and greater than 50% of the miles driven must be business miles. The Section 179 deduction can be taken on new or used equipment and is limited to $139,000 in 2012. This deduction is reduced dollar for dollar if you place more than $560,000 worth of equipment in service during the tax year. In other words, if you place $699,000 worth of assets into service during 2012, your Section 179 deduction will be zero; if you place $600,000 worth of assets into service during 2012, your total Section 179 deduction will be limited to $99,000. Besides the limitation just mentioned, the business also must have income in the tax year for this deduction to be claimed or it is carried forward. The bonus depreciation deduction is to be used on new equipment only and allows up to 50% of the purchase cost to be deducted in 2012.
The above deductions are limited based on the type of vehicle and its gross vehicle weight (GVW). For example, in 2012 a car with GVW of 6,000 pounds or less will be limited to $11,160 of total depreciation if bonus or Section 179 depreciation is utilized or $3,160 regular depreciation if neither of these special depreciation options is elected or the taxpayer does not qualify for them. For trucks and vans with loaded GVW of 6,000 pounds or less, the 2012 total depreciation limits utilizing special depreciation and regular depreciation are $11,360 and $3,360, respectively. The depreciation amounts are also limited by the percentage of business miles versus total miles driven during the year. For example, if based on 100% business use the depreciation allowed is calculated to be $1,000 and the taxpayer drove 4,000 business miles and 10,000 total miles. The depreciation deduction would be 40% or $400.
As always, depreciation reduces the basis in the vehicle, so if the vehicle is sold, the calculation of the gain or loss will be affected by the amount of depreciation taken.
If you have any questions or would like more information, please contact Mary Knigge at (302) 656-6632.
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