Question about Car expense deduction


T

The Avatar

Here is the situation:

In 2003, I purchased a car that was being used for business
purposes (restaurant business). The only mileage put on
this car was either for "business" or for commuting to the
business.

Rather than taking the mileage deduction, I chose to expense
all auto expenses (naturally, multiplied by the percentage
of business use) as well as to take the allocable
depreciation deduction for the car.

In 2004, I started a second business - real estate agent. I
have kept track of all mileage incurred while showing homes.
However, when it came to fuel expenses, etc., I continued
to track them as part of the restaurant business. The
amount of miles put on the car from the real estate business
is dramatically larger than the miles from the restaurant
business.

So basically, I'm in a situation where when I first go the
car, I was using the expense/depreciation method, but now I
find myself in a situation where I'm using it for business
purposes other than what I originally began expensing it
under.

What can and should I do or be doing about this? How can I
possibly separate the fuel expenses and depreciation expense
related to the car and allocate it among the two businesses
so that I get the maximum deduction possible for each
business?

Any advice would be appreciated.
 
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T

TaxSrv

The Avatar said:
In 2003, I purchased a car that was being used for business
purposes (restaurant business).
...
In 2004, I started a second business - real estate agent.
...I continued to track them as part of the restaurant business.
How can I
possibly separate the fuel expenses and depreciation expense
related to the car and allocate it among the two businesses
so that I get the maximum deduction possible for each
business?
There's no way to increase the total am't of deduction by
using it in two businesses. If you now will file 2 Sch C's
under the same SSN for self-employment tax, how you allocate
total expenses and depreciation to each Sch C is not
critical, whether mere % estimate or splitting out the
business miles and striking a % each year. However, your
mileage record should note which trips are for the
restaurant, but you need not account for the operating
expenses separately.

You should have two Forms 4562 to allocate the depreciation,
but if you did just one and allocated all depreciation to
R/E sales, IRS isn't going to care a whit in your case.

Your biggest problem may be if using TurboTax or such.
Unless you separate the car into 2 assets, and work with the
expenses using a scratch-pad % allocation, you may have to
"override" many entries, which is hazardous except for us
tax preparers. Either way you could be in for one long and
painful computer session. Since expenses for the restaurant
are so small as you noted, it may be easiest to put the
whole car under R/E sales, since IRS knows there's no real
relationship between miles driven and commisions reported.
You can probably explain why that is so. :)

Fred F.
 
A

Arthur Kamlet

TaxSrv said:
"The Avatar" wrote:
There's no way to increase the total am't of deduction by
using it in two businesses. If you now will file 2 Sch C's
under the same SSN for self-employment tax, how you allocate
total expenses and depreciation to each Sch C is not
critical, whether mere % estimate or splitting out the
business miles and striking a % each year. However, your
mileage record should note which trips are for the
restaurant, but you need not account for the operating
expenses separately.

You should have two Forms 4562 to allocate the depreciation,
but if you did just one and allocated all depreciation to
R/E sales, IRS isn't going to care a whit in your case.
There is a problem with sloppy record keeping here if it
produces a loss in one sch C business but would have
produced a gain if allocated correctly.

The burden of proof that you have a profit motive, and
therefore should be able to deduct expenses on schedule C,
could shift from the IRS to you if you have 3 of 5 years of
losses on a schedule C business.

__
Art Kamlet ArtKamlet @ AOL.com Columbus OH K2PZH
 
T

The Avatar

There's no way to increase the total am't of deduction by
using it in two businesses. If you now will file 2 Sch C's
under the same SSN for self-employment tax, how you allocate
total expenses and depreciation to each Sch C is not
critical, whether mere % estimate or splitting out the
business miles and striking a % each year. However, your
mileage record should note which trips are for the
restaurant, but you need not account for the operating
expenses separately.

You should have two Forms 4562 to allocate the depreciation,
but if you did just one and allocated all depreciation to
R/E sales, IRS isn't going to care a whit in your case.
Thanks for the response. You were the only one that got as
detailed as I needed.

I wanted to clarify something. The previous year -- I filed
a 4562 for the restaurant which listed the car under
limited property with the proper amount of business mileage
over total mileage (about 53%). No real estate business
then.

Now, I understand what you mean by filing two -- but what
I'm not as certain about is how to list that on each of
them. For example, in the real estate 4562, would I list
the miles used in restaurant as "non-business" for purposes
of the real estate deduction. Do I put the total remaining
basis to depreciate on both forms -- i.e., list the car
twice on two different schedules?

And what is the impact of using a car say 40% for commuting,
35% on real estate, and 25% on restaurant -- the business
miles is greater than 50%, but not for each business. So do
I put this mileage under the 50% or less category.

The more I think about it, the more I think I just need to
attach a schedule explaining it all on a separate piece of
paper. I can easily explain it -- so long as I don't have
to rely on the IRS's forms. I just calculate the allowed
depreciation expense as if it were one business and then
divide the expense among the two businesses based on the
percentage of business use. What do you think? -- is this
the best way to go or is there an easy way to put all this
on the forms that I'm missing.
Your biggest problem may be if using TurboTax or such.
Unless you separate the car into 2 assets, and work with the
expenses using a scratch-pad % allocation, you may have to
"override" many entries, which is hazardous except for us
tax preparers. Either way you could be in for one long and
painful computer session. Since expenses for the restaurant
are so small as you noted, it may be easiest to put the
whole car under R/E sales, since IRS knows there's no real
relationship between miles driven and commisions reported.
You can probably explain why that is so. :)
As much as I hear so many good things abou those computer
programs, I prefer the flexibility of doing it the old
fashion way -- I use a computer to give me the numbers, but
I ultimately put them in myself.

Sorry if my thoughts aren't very clear. I'm actually pretty
good when it comes to taxes (I'm an attorney with business
and tax background). And I've been filing my complicated
business taxes for the last 3 years. But I think I've
finally gotten to the point where I need to get a tax
professional involved.

And I do plan on talking with one before next April -- I
just kind of want to get it straight in my own head before I
spend time talking with an acct.

Thanks again.
 
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T

TaxSrv

The Avatar said:
...
Now, I understand what you mean by filing two -- but what
I'm not as certain about is how to list that on each of
them. For example, in the real estate 4562, would I list
the miles used in restaurant as "non-business" for purposes
of the real estate deduction. Do I put the total remaining
basis to depreciate on both forms -- i.e., list the car
twice on two different schedules?
....
It's still one vehicle; biz use % has merely increased. If
you're doing the return manually, I recommend one 4562.
Where they ask for "activity" on the front, list both with a
slash in between. For depreciation claimed, footnote the
split amount to each Sch C. Where you enter business miles,
note the split of miles to each.
The more I think about it, the more I think I just need to
attach a schedule explaining it all on a separate piece of
paper.
Avoid that for something like this. In processing, IRS
doesn't even look at that stuff. For the small % that are
screened for audit, the examiners usually don't need that
kind of "help," if the sum of tax form schedules and
attached explanation requires analysis just to understand
what you are trying to explain. They are looking for
returns which have audit potential for the reasons returns
usually do. An example in your case is simply the miles
driven for the business as depicted by the Sch C. Excess
paper to explain unclarity on two separate schedules, keyed
to 2 Sch C's, doesn't make their job easier (I supervised
this operation at IRS). Hence, my suggestion above.

Fred F.
 

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