Thursday, December 8, 2016


Another tax reform suggestion.

I have thought about making a change to the rules for deducting business use of a personal automobile – which would apply to both employee business expenses and Schedules C, E and F – to more honestly reflect the true economic cost of business auto use.

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

I own a car. I have always owned a car.  Although a large percentage of my current driving is business related (because since I work out of a home office I have no “commute”), I own the car primarily for personal and not business 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 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.

But 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 probably insurance.

The 2016 business standard mileage rate of 54 cents per mile includes 24 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.

I also believe the standard mileage allowance for driving related to volunteer work for a church or charity should be the same as the rate for medical and moving driving, and adjusted up or down annually based on the study of actual costs.  Currently the 14 cents per mile standard mileage allowance for charitable driving is set by Congress and hasn’t changed since 1998.

Taxpayers using their car for business would continue to have the option of using the appropriate business use percentage or actual expenses, but without depreciation.  Those who lease a car and use it for business could also use the standard mileage allowance or actual expenses, but this deduction would 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 will be allowed for 100% of the actual costs of maintaining and operating the vehicle, including depreciation. The standard mileage allowance would not be allowed.

So what do you think?


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