Tax Strategy - Let Washington Pay for Your Corvette, Porsche, or Air Plane
Deducting Your Auto Expenses In this lesson we will cover another popular subject, automobile deductions. There is so much information to cover; we'll break auto deductions down into two separate newsletters. As you read on, keep in mind that these newsletters are not written as a technical treatise. They are designed as an educational reference, to give readers a "nuts and bots" understanding of some of the significant issues surrounding the topic and to encourage them to consult with their legal and tax professionals for advise concerning their own situation. Overview: Auto deductions are a very complex topic.
So, to clarify, we are not going to attempt to cover all of the intricacies of the subject. Instead, we will cover some of the most-used provisions and provide you with a better understanding of some of the associated issues. In keeping with one of our primary strategies, what we are interested in doing with our automobiles is to convert as much of their use as possible to legitimate business purposes. That's because personal auto use is not deductible. As a result, the object here is to maximize the amount of auto use you can attribute to business purposes and document that usage properly.
Strategy One: The Actual Method vs. the Standard Method There are two methods that you can use to deduct your automobile usage. For the most part, you can choose the method that provides the greatest method to you. The first method is the "actual"(expense) method. The other is the "IRS" (standard) method.
The Actual Method. This method requires that you keep track of your actual auto expenses and then compute the percentage of business use. So, you can deduct the business percentage of all operating expenses such as gasoline, insurance, licenses, maintenance, cleaning, etc. Your parking fees and tolls can be deducted in full. One simple way to track your individual expenses is to put them on your company credit card.
That way, your monthly statement will provide you with a breakdown of these costs. You should also put them into a tax diary to have the most complete documentation possible. Most accountants are comfortable if you give them an approximation of the percentage of time you use your auto for business. Your daily diary will help to substantiate this amount. I often hear them suggest a figure between 70% and 90% if you are a full time business person.
As a result, you will attribute that figure (say 80%) as a business deduction and the balance is a personal expense. Note: if you use this method, you cannot switch to the standard method later on. The Standard method. The Standard Method involves tracking your actual business mileage use and multiplying the number of business miles you drive by the IRS rate. There are three different ways to track your mileage.
You may choose the method your prefer. Strategy 1a. The three ways of tracking your miles. Method #1. This is called the Every Day, Every Trip method.
This is the most complete method. It requires you to track each and every trip that you take for business purposes. You must notate your miles at the beginning of each business trip and again when the trip is completed. Then, subtract the difference and you've got your miles traveled. It is best if you actually keep the notation of the beginning miles and the ending mileage in your diary.
If you want a really thorough record, you should document your business use and personal use each day. But, let's face it, most of us have better things to do with our time. Method #2. Another method that is acceptable to the I.R.S. is to track each trip you take for a period of three months.
The three-month period is considered a good reflection of your average auto usage for tax purposes. Then, all you need to do at the end of the year is multiply this number by four to determine yearly usage. Method #3. The "one week per month method". With this method, you track each of your business trips during say, the first week of the month.
You repeat this each month and take an average of your mileage as your deduction. 2002 Rates: This year, the mileage deduction is 36.5 cents per mile. Simplified Technique: There is a short cut to tracking your mileage. Most people have a certain number of places that the travel to regularly. It may be certain of your client's offices or a hotel where you meet with people regularly.
You can determine the miles once, and keep it on file. For example, keep a record in your diary that it is 55 miles round trip to a particular client's office. Then, each time you travel there, simply use the already established mileage in your diary. Hot Tip: As outlined above, most people track the mileage that we incur for business purposes and forget about the mileage traveled for personal use. As a result, the assumption is that you are driving for personal reasons, and you only record a trip if it is for business reasons.
To use a computer term, the "default" is personal mileage and we only get to deduct what we actually track. If you forget to track a particular trip, you lose the deduction. There is an alternative that may prove easier for you. Make your "default" business usage, and only track the personal miles. So long as you do this consistently, this is perfectly acceptable to the I.R.S.
and, for those of us who use our cars mostly for business, this method substantially limits the amount of record keeping we must do. Whether you use the actual method or the standard method is a decision that you should make after consulting with your tax professional. Strategy 2: The Two Car Strategy. The purpose of this strategy is for you to get a greater tax benefit if you already have two cars: one for personal use and one for business. So, if you already have two cars in your family, use this strategy to your advantage, but don't go out and purchase a second car just to implement it.
This strategy takes into account not only the typical costs associated with auto usage, but also the depreciation expense as well. You can imagine that if you only drive one car for business, the maximum business use percentage you can achieve is 100 percent. If you drive two cars for business, is it possible to drive both the first and second car 100% for business? Yes! That's because your business use is based on the business miles that you drive. But, can you still get a net benefit of using two cars for business even if you use the second car less than 100% percent for business? Again, the answer is yes. Part of the benefit is that you can depreciate what is called the "basis" of your car.
Because the "second" car was used for personal purposes, you determine its basis on the day that you convert the car to business use. On that day, you determine its basis by comparing cost and market value of the car and using the lower of the two. Here, the cost is what you paid for the car originally plus any capital improvements that you have made to it. For example, a capital improvement would be any amounts you spend to re-build or re-place the engine. So, if you purchased the car several years ago for $8,000, and today it has a retail book value of $5,000, and you haven't made any capital improvements, your basis for computing depreciation is $5,000.
Let's look at an example (thanks to Sandy Botkin, C.P.A., Esq.) Two Cars One car Car 1 Car 2 Business/Personal use Mileage for Business 22,000 18,000 4,000 Total Mileage for Year 24,000 20,000 7,800 % Business Use 92% 90% 51% Deduction Calculations Gas and Oil 1,540 1,260 280 Insurance 800 800 600 Repairs and Maintenance 600 600 600 Tag and Licenses 100 100 80 Wash and Wax 230 230 202 Other 50 50 50 Total Op. Expenses 3,320 3,040 1,812 Business Use % x 92% x 90% x 51% Business Total 3,054 2,736 924 Depreciation 2,815 2,754 1,540 Total Deductions 5,869 5,490 2,464 Extra Deductions $2,085.00 Note: Assuming value of each car is $16,000 The point here is that simply by converting some of your usage of your second car over to business use, you can get far more benefit than the 2% of the business usage that you "give up" on your first car. The lesson, enroll the use of your second family car into the business. Note: There is one disadvantage of the "two car" strategy. You cannot use the simplified tracking technique outlined above.
You must track the actual usage for each business trip. Change to the Old Rule: The old rule allowed the maximum standard rate for only the first 15,000 business miles an auto was driven during a year. And, once the auto had accumulated 60,000 business miles at the maximum IRS optional rate that automobile was considered fully depreciated and you had to switch to 14 cents per mile. Under the new rules, the per mile rate applies to all business miles. There is no 15,000 mile annual limit or 60,000 mile maximum.
Strategy 3. Buying vs. Leasing Your Auto: The rule for tax purposes is: Buy your cars, don't lease them, to obtain the best after-tax return on your car investment. Reasoning: The after-tax cost is greater to lease than to purchase both business and personal cars. The difference is about 10% in favor of purchasing.
Contrast this with a wealth building concept. You should buy appreciating assets and lease depreciating assets. Under this rule, it would seem that typically, your better option overall is to lease your vehicle because it is probably a depreciating asset. Note: This might not be true for certain collector's cars, etc. that appreciate over time.
The bigger picture: If you plan to drive the car for two years or less, lease it. If you plan to keep it for four years or more, purchase it. In between two and four years, it's a tossup. So how do you reconcile these conflicting rules? Here are a few more guidelines that set out the non-tax leasing advantages. Leasing is a good idea if you meet a few of the underlying criteria: 1.
Your financial income does not vary from year to year. 2. It is important to drive a new vehicle in your business. 3. You don't like to own cars for many years.
4. You generally drive less than 15,000 miles per year. 5. Your credit rating could use some improvement. 6.
You hate auto repairs and dislike leaving your car at the "shop". 7. You are an employee who uses a car for business and don't have the money to purchase the car with cash. 8. You quickly tire of the same car.
Strategy 4. Identify supplies and equipment used to maintain your business car. Look around your basement and garage, or wherever you store tools and cleaning supplies. Make a list of the items you use on your car. You will probably find a battery charger, battery cables, and maybe even a battery tester, and various other tools.
You can deduct these items two ways: If the cost of the tool is more than $100, it should be capitalized and depreciated. If the cost is less than $100 for an individual item or group of small tools, its normal to expense such items in the year they are purchased. Proof: Since you will be sorting through old acquisitions, it's likely you won't have receipts. Take photographs because they can represent reasonable substitute evidence. Strategy 5.
Deduct the Cost of Garaging Your Car If you must pay separately for the cost of keeping your car in a garage, you can deduct this cost as a business expense. Your call to action. Decide on the best way and most convenient way for you to track your auto expenses. Which of the four methods is most practical and beneficial to you. Review the different ways with your accountant or C.P.A.
Also, determine if you can take advantage of the two-car strategy. Sincerely, , The Tax Saving Attorney.
Drew has combined what he learned during formal education, informal education and twenty five years of business experience in the development of programs designed to teach people how to build and preserve lasting wealth. He is an author, teacher and international speaker in the areas of asset protection, and tax saving and wealth building strategies.Happy Camper RV Club Doubles Membership, Surprises Customers with Freebies, Creates a Unique Environment Online for RV Travelers
Monroe, LA (ContentDesk) May 5, 2006 -- Happy Camper RV Club is well-known throughout the camping industry as a half-price discount rv club.
With over 1,000 campground and RV park locations in the US and Canada, the club has doubled membership in the last two years by giving "more than what is promised" to its members, and creating a web site that gives RVers a fun environment online for trip planning and learning.Club president, Anne Pierson, describes the secret to the club's success by stating, "We always give more than we promise, and our members love the extra bonuses we create to serve them - above and beyond our promise of saving 50% on camping.
Members never know when they will get an email from us with a fun "freebie" they can request by mail, or an interesting addition to our web site."Our goal is to surprise and delight our visitors and members with added value wherever we find it.
As an example, our friends at RV Education 101 gave us a generous...
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Wireless Extenders Offers New Signal Booster at 800MHZ To Increase Cell Phone Coverage in Homes and Offices
Atlanta, GA (ContentDesk) December 21, 2005 -- Wireless Extenders, Inc. (www.wirelessextenders.com), a leader in developing new products that enhance wireless cellular communications, announced their latest product, the YX500-CEL.
This reliable product captures and amplifies the 800MHz signal for cell phone users in homes or offices where cellular signal cannot penetrate.
This product joins the strong-selling YX500PCS and the YX600PCS versions that are compatible with all PCS (1900Mhz) phones.
According to research, over 35% of cellular phone users nationwide experience poor quality or loss of signal strength when using a cell phone in their office or home.
Increasing the indoor coverage can translate into increased productivity and savings.
Some of the benefits include extending the battery life, replacing landlines phones, reducing or...
Battery > Wireless Extenders Offers New Signal Booster at 800MHZ To Increase Cell Phone Coverage in Homes and Offices
Wireless Extenders Offers New Signal Booster at 800MHZ To Increase Cell Phone Coverage in Homes and Offices
Atlanta, GA (ContentDesk) December 21, 2005 -- Wireless Extenders, Inc. (www.wirelessextenders.com), a leader in developing new products that enhance wireless cellular communications, announced their latest product, the YX500-CEL.
This reliable product captures and amplifies the 800MHz signal for cell phone users in homes or offices where cellular signal cannot penetrate.
This product joins the strong-selling YX500PCS and the YX600PCS versions that are compatible with all PCS (1900Mhz) phones.
According to research, over 35% of cellular phone users nationwide experience poor quality or loss of signal strength when using a cell phone in their office or home.
Increasing the indoor coverage can translate into increased productivity and savings.
Some of the benefits include extending the battery life, replacing landlines phones, reducing or...
Battery > Wireless Extenders Offers New Signal Booster at 800MHZ To Increase Cell Phone Coverage in Homes and Offices
The Benefits of Electric Indoor Wheelchairs
Electric indoor wheelchairs are a boon to wheelchair users. They add power, speed and comfort to the experience. Indoor electric wheelchairs are for people who have absolutely no mobility, even at home. However, indoor wheelchairs cannot be used outdoors, except in the garden or lawn. There is a huge variety of indoor wheelchair brands to choose from.
They are provided with several options and can be custom designed to suit individual needs. There are also plenty of styles and colors to choose from.
Certain guidelines must be met while providing an indoor electric wheelchair to a person. The person should be suffering from a defect of the locomotor system or from chronic heart or lung conditions that make walking impossible. The person should be unable to effectively self-propel a manual wheelchair indoors. The wheelchair user should also be able to achieve a fair level of independence in the home because of the electric indoor wheelchair.
The need of this...
The Benefits of Electric Indoor Wheelchairs
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Ford Crown Victoria: A Blend of Tradition and Change
The 2005 Ford Crown Victoria is a sedan crafted by the Ford Motor Company. This vehicle has been specially designed so as to target consumers who are leaning towards the traditional large car type. This vehicle also features the American way of growing up with vehicles ? offering space and room, comfort, a smooth ride, power from a V8 engine and a rear wheel drive.
This vehicle has been crafted and made available in three trim levels which comprise of the Standard, the LX and the LX Sport. It has the capacity to take in a maximum of six passengers in its cabin, and offers some 111.2 cubic feet of passenger volume.
The largest in its class, the trunk holds 20.6 cubic feet of space and room. The 2005 Ford Crown Victoria boasts wide door openings, large glass areas for good visibility a wraparound aerodynamic headlamps, and a standard foldaway remote-control power outside mirrors....
Ford Crown Victoria: A Blend of Tradition and Change
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Sony Announces 5 New miniDV Camcorders
The Sony DCR-HC19E, Sony DCR-HC22E, Sony DCR-HC32E, Sony DCR-HC39E and Sony DCR-HC42E miniDV camcorders, all with Megapixel and widescreen recording and playback, are due for release in February 2005.The highly versatile Handycam Station supplied ensures that your camcorder is always ready for shooting and playback. Full story at http://products.sony.co.uk/new_sony_handycams.aspSony DCR-HC42E and Sony DCR-HC39EOne step ahead, the Sony DCR-HC42E (DCRHC42E) and Sony DCR-HC39E (DCRHC39E) Compact DV camcorders use the full width of a 1megapixel CCD to always capture and playback your images in true 16:9 widescreen. A high picture quality for both movies and still images is guaranteed and true 16:9 movies can be played back to the full on a home theatre system.Sony DCR-HC19E, Sony DCR-HC22E and Sony DCR-HC32EThe Sony DCR-HC19E (DCRHC19E), Sony DCR-HC22E (DCRHC22E) and Sony DCR-HC32E (DCRHC32E) camcorders will...
Sony Announces 5 New miniDV Camcorders
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Talking Rugged Notebook
Copyright 2005 Richard Keir
A rugged notebook offers mobile professionals the ability to work in any environment and in any location. Versatile and powerful, rugged notebook computers are designed specifically for both in-plant and outdoor industrial (and military) applications. Built to handle the toughest environments, fully ruggedized notebooks should have IP54 environmental protection, meet MIL-STD 810F and have heavy duty - generally magnesium alloy - cases. Rugged notebook computers enable professionals to work smoothly in adverse environments and are adequately equipped to face almost any tough situation with ease. Naturally, these rugged notebook computers are heavier than non-rugged models but offer substantially more protection than standard laptops.
RuggedNotebooks.com offer a variety of semi-rugged and rugged notebooks, wireless tablets and even rugged PDAs in their Recon series. They also offer custom solutions.
Arguably the most rugged and...
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Drive Your Car to Summer Fun
The snow has finally thawed and the cold is moving further away. Summer is coming ever so swiftly that you would not actually notice it until you can feel the heat of the season. However, the shift from the winter and cold days to the hot and sunny weather of summer is something that you would have to consider with regards to your car. After all, driving conditions during winter is a far cry from the driving conditions during the hot and dry months of summer. Just like getting your car ready for winter, you should also get your machine in condition for summer.
Make sure that you first remove your snow tires. They may have worked well during those cold snowy days however they will only wear out faster if you use it on dry roads. You can do this yourself or you can opt to have them removed at some service shop which could be, of course, for a fee.
Check your tire pressure when the tires are cold. This is mainly because you would be getting...
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