Wednesday, June 6, 2018


OK, here is another deduction in the US Tax Code that unfairly benefits specific taxpayers by disproportionately distorting economic reality.  This is also taken from “The Tax Code Must Be Destroyed”.

The standard mileage allowance for business use of the taxpayer’s personal auto currently includes a component for depreciation of the vehicle.  Depreciation is not a factor in the standard mileage allowance for medical, moving, or charitable travel.  If you elect to deduct the business percentage of actual auto expenses you can include depreciation in the calculation of the deduction.  

For the most part taxpayers who use their car for business would own a car whether or not one was needed for business. The business use, however extensive, is basically secondary to personal use.

I have always owned a car.  Although a large percentage of my driving is for business, I own the car primarily for personal reasons, and would own a car whether it was needed for business or not.   

Currently the standard mileage rate for business is calculated using an annual study of the fixed and variable costs of operating an automobile - including depreciation, insurance, repairs and maintenance, tires, and gas and oil. The rate for medical and moving purposes is based only on the base variable costs, like gas and oil.

Because the main reason for purchasing a car is personal and not business, depreciating the cost of purchasing the car, based on business use, is not really a true business expense.  Only the business use percentage of actual operating expenses should be allowed as a deduction – because the more miles you drive the more you spend for gas, oil, repairs and maintenance, tires, and insurance.

The 2017 business standard mileage rate of 53.5 cents per mile, for example, included 25 cents allocated to depreciation.  Under my change if you use your car for business, either as an employee or a self-employed individual, the standard mileage allowance for business miles would not include a component for depreciation.  So, using the 2016 rate as an example, business standard mileage allowance would be 30 cents per mile and not 54 cents.

Taxpayers electing to deduct the business percentage of actual expenses should not be able to include depreciation in the calculation.  Those who lease a car and use it for business should have the option of using the standard mileage allowance or actual expenses, but the actual expenses should not include the monthly lease payment.

In the case of motor vehicles used 100% in a business – trucks, vans, limos, cars that are leased out to others (including one’s corporation) or used exclusively by couriers or for deliveries – a deduction should be allowed for 100% of the actual costs of maintaining and operating the vehicle, including depreciation. The standard mileage allowance should not be allowed here

This inequity has been to a degree addressed by the elimination of the itemized deduction for all employee business expenses for 2018 through 2025 via the GOP Tax Act.  However, it still exists for business entities, including sole proprietorships reporting income and expenses on Schedule C.

Your thoughts?

Do you have any deductions or credits to add to this list?


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