Vehicle Expense Deduction
Hey peeps! How’s it going?
On my end...well, its been a bit of an exciting month...I’ve had to commute from Long Beach to LA for a really good reason. I’ve been training someone to help me with my work-load, and if you remember from my check-ins, this is something that I desperately needed, but the commute got me thinking...wouldn’t it be fun to do an episode on the vehicle expense deduction? Heck yeah it would! So today we’re going to be discussing what types of drives qualify for vehicle expense deduction, the two equally legitimate ways to claim this deduction, and the best way to claim it if it's your first time doing it. Ready? Lets go!
I know you’d be uber bummed if you missed out on some easy money simply because you don’t know what type of drives qualify for the vehicle expense deduction. Don’t worry. I won’t let that happen. Here’s an easy test you can use to help. Think: Is this drive both ordinary and necessary for the business?
If you’re an event planner then its very likely that you frequently travel between your office and the location where the event is held. This seems both ordinary and necessary because it stands to reason you have to check out the site before booking. Imagine if you tried to book sight unseen...that could be disastrous! By the way, if you’re out there planning parties hook it up. I know I’m 32 but I can still party like its 1992.
Ok, enough of my groovy dance moves...now that you have a tool to help you determine whether or not your drive qualifies lets discuss what’s been on my mind this past month: Did you know that there are two equally legitimate ways to claim this deduction? I know! Crazy right?
And you wonder why people are so confused by the tax code.
Honestly, sometimes when I answer questions I feel like the Chesire cat because my answers seem to be non answers but I promise we’ll unravel this craziness together.
The first option, and easier of the two, is taking the Standard Mileage Rate Deduction. This is a pre-set amount, per mile, that the IRS believes will cover the cost of driving and vehicle upkeep for business purposes. As of today April 26th, 2019, the standard mileage rate 54.5 cents per mile. That means if you drive two miles ::cha ching:: you just saved yourself a dolla. Now I know that doesn’t sound like much but if you’re driving for business purposes this can add up quick. To take advantage of the standard rate deduction all you need to do is keep good records of the business miles you drive. More on record keeping in a bit.
The second option, is deducting the actual business expenses incurred. This means you’ll be able to deduct all costs associated with operating your vehicle including but not limited to: gas, maintenance, repairs, insurance, loan interest or lease payment; but it's important to note that if you’re deducting the actual expense you’ll need to prorate the cost between business and personal use because you can only claim the business portion. For example, if your car usage is 60% business and 40% personal, well, you’ll be able to deduct 60% of the total cost!
This next part is extremely important: If this is your first year claiming the vehicle expense deduction, and you opt to claim the actual vehicle expense rather than the standard mileage rate you won’t be able to switch back to the standard mileage method in future years. That’s right. Its like you put a ring on it and there’s no going back...like think back in ye old time-y days where divorce was a no-no. Yup. Locked down for life! So if you’re not ready to be tied down like that, and it’s your first year claiming the vehicle expense deduction, you may want to start by claiming the Standard Mileage Rate. That way you can run the numbers, and claim whichever will be most beneficial to you in the subsequent years.
Now, regardless of which option you choose you must keep meticulous records. Yes, you can use the good ‘ol notebook and pen to keep track of your mileage records. So for my peeps that like to keep it old school Click Here for a free PDF that you can use to keep track of your mileage. If you’re more like me and prefer to keep everything on the cloud; your best bet is a mile tracking app. The one I use is part of my QuickBooks Self-Employed subscription. Click Here for my affiliate link to QuickBooks Self-Employed.
My goodness I think its time for something fun, don’t you? Ok! Lets give a shout out to sponsors for this episode:
First sponsor today is Michael - Thank you for voting for your favorite intro. Not sure how I missed you the first go-round but I really appreciate your encouragement and support.
Our second sponsor today is C Lewis 101 - thank you for your kind review on itunes. Clewis101 writes: Wendy, I really enjoy this podcast. I rarely find informational podcasts that keep my attention. I am excited to learn more from you. You have given me so much information on secret deductions which will help me. Thank you and keep up the great work.
Thank you my friend for your kind words of encouragement. I’m overjoyed that you’re finding this podcast helpful, and I look forward to sharing with you all the legitimate ways that will help you can keep more money in your pocket.
And thank you listeners. Your love and support make this PodCast possible. Thanks for showing me love.
Ok, before now that we’ve hugged it out lets look at what’s next on the agenda...hmmm... Next on the agenda is Tips To Tame Your Taxes. Why? Because life-hacks rock.
Don’t leave money on the table! If you drive for business purposes and you haven’t been tracking your mileage...start now! You could be leaving up to 54.5 cents per mile on the table come tax time. It may not sound like much but would you rather have that money or give it freely to the government?
There are two equally legitimate ways to take the vehicle expense deduction. Make sure you’re ready to be all in if you choose to claim the actual expense versus the mileage standard. Otherwise you may want to start by claiming the standard mileage expense so you can switch between the two in future years.
If you drive for business and personal purposes make sure you prorate the expenses as you’re only be allowed to deduct the business portion of the expense.
Make sure you keep meticulous records. I have a free PDF you can have, if you prefer paper records, or you can use my affiliate link to quickbooks self-employed, which includes mile tracking capabilities, if you prefer to keep it on the cloud.
Ok...enough tax stuff. Lets talk Shocking Scandals and Dirty Deeds - Tax Edition
Today’s shocking scandal and dirty deed features Mr. Michael Avenatti, attorney at law. He is charged with embezzling from clients, cheating a mississippi bank, trying to extort millions of dollars from Nike and that’s the tip of the iceberg; he’s also charged with wire fraud, tax violations AND lying under oath.
Since this case is so juicy we’re going to break it down a bit. Mr. Avenatti has been charged with 35 counts of embezzlement but the one I find most egregious is what transpired in 2015. In 2015 Mr. Avenatti received a 4 million dollar settlement on behalf of his client. His client received this settlement from Los Angeles County because they suffered physical injuries including paraplegia, and instead of turning this money over to his client Mr. Avenatti allegedly used the funds for personal purposes. How disgusting. Oh, but he was kind enough to pay his client’s rent and sent money occasional claiming they were ‘advances” on the settlement. Gross. In 2014 Mr Avenatti submitted false tax returns to a bank in Mississippi to get loans for over $4 millions dollars, and most recently he threatened Nike by telling them he would hold a press conference that would disclose how corruption reached even the highest levels of Nike...unless of course they ponied up $20 million for him and another attorney to conduct an internal investigation.
If he’s found guilty of all charges he could spend up to 335 years in prison...and you know how all this started? With an investigation from the IRS because they were trying to collect from one of his businesses. At this point all I have to say is: good luck bro. Should’ve paid your taxes.
Well, peeps, its safe to say Mr. Avenatti probably wouldn’t be a great addition to our tribe, unless he wanted to go on the straight and narrow and keep more money in his pocket through legitimate means...and when he’s ready he’s welcome here. In the meantime, if you know someone might be a great addition to our tribe please please make sure to share. And if you’ve enjoyed this episode please make sure to rate and leave a review wherever you listen to podcasts so others can find out about the show too!
As always, sending you love and happiness, I’m Wendy Uken, have a wonderful day!
P.S. this is not legal advice specific to you or your situation; and you should consult a professional (like me!) to determine what is right for you and your business.