Terry D EA Posted January 3, 2017 Report Share Posted January 3, 2017 A retired client is a driver's Ed instructor that certifies bus drivers along with other driver license and training activities. He is not provided a vehicle and uses his own vehicle to go to numerous places during a typical work week. He is paid a salary and receives a mileage reimbursement. He wants to depreciate the truck. The truck was purchased primarily for this activity and is used 100% for the driver ed activities. If he does so, am I correct in stating the mileage reimbursement becomes taxable income?? I am of the opinion that he has to claim actual expenses to do so as well. Suggestions or insights please. Quote Link to comment Share on other sites More sharing options...
Ringers Posted January 3, 2017 Report Share Posted January 3, 2017 I would take his actual expenses (gas, depreciatoin, repairs, insurance, licenses, stickers, washes, etc.) multiplied by his business use of the vehicle (not counting commuting and any other personal use) and then subtract the reimbursement he receives from this total. Both the expenses and reimbursement would be shown on a 2106 as long as he is a W-2 employee, Schedule C if 1099 subcontractor. This is what I have always done in the past when I encountered similar situations. 4 Quote Link to comment Share on other sites More sharing options...
Abby Normal Posted January 3, 2017 Report Share Posted January 3, 2017 You didn't say if he gets the full standard mileage rate, but if he does, that might exceed his actual expenses. But the excess reimbursement does not generate income. Quote Link to comment Share on other sites More sharing options...
RitaB Posted January 3, 2017 Report Share Posted January 3, 2017 59 minutes ago, Abby Normal said: You didn't say if he gets the full standard mileage rate, but if he does, that might exceed his actual expenses. But the excess reimbursement does not generate income. Excess reimbursements are taxable. In this case, if Terry's salaried guy has excess reimbursements on 2106, they'll get reported on line 7 of 1040. I'm not sure why Terry's client would claim actual expenses that are less than SMR unless it increases EITC. (I'd take a pass on that one as a preparer.) Also, employers may reimburse at any rate they want. If they reimburse at 60 cents a mile for 2016, for example, they're supposed to include the extra six cents a mile in Box 1 of W-2. Quote Link to comment Share on other sites More sharing options...
Terry D EA Posted January 4, 2017 Author Report Share Posted January 4, 2017 My client is a W-2 employee. I planned on doing as "Ringers" stated but just wanted some confirmation my thinking was on target. Rita, I am with you totally. This client does not qualify for EITC either. This client claims his sister has an LLC and depreciates a vehicle she uses for business so he is thinking he should do the same. His argument is the vehicle depreciated due to the mileage put on ii which he is correct to the extent a vehicle naturally depreciates regardless of how you put the mileage on from either personal or business. Just have to have the right words to make all of this make sense to my client. 1 Quote Link to comment Share on other sites More sharing options...
Abby Normal Posted January 4, 2017 Report Share Posted January 4, 2017 If you get paid the federal maximum mileage rate it is not taxable because it is considered to be a reimbursement. That's what I was trying to convey. 1 Quote Link to comment Share on other sites More sharing options...
Terry D EA Posted January 4, 2017 Author Report Share Posted January 4, 2017 Thanks for the clarification but I still agree that if you take the actual expenses and subtract the reimbursement from them, the excess should be taxable. I guess I should dig a bit deeper. I also agree with your statement if you don't claim actual expenses and just take the reimbursement then any excess is a reimbursement. 9 minutes ago, Abby Normal said: If you get paid the federal maximum mileage rate it is not taxable because it is considered to be a reimbursement. That's what I was trying to convey. Quote Link to comment Share on other sites More sharing options...
SaraEA Posted January 4, 2017 Report Share Posted January 4, 2017 Terry, the right words are that the standard mileage rate includes a depreciation component (24 cents a mile for 2016). Also tell your client that the IRS will not believe any vehicle is used 100% for business (except a cement mixer I was told). To solve your conundrum, just complete a 2106 and see if the software makes the excess taxable. If it does, go with the standard! Quote Link to comment Share on other sites More sharing options...
Abby Normal Posted January 4, 2017 Report Share Posted January 4, 2017 6 minutes ago, SaraEA said: IRS will not believe any vehicle is used 100% for business Yeah, this guy has commuting miles at the very least. 2 Quote Link to comment Share on other sites More sharing options...
RitaB Posted January 4, 2017 Report Share Posted January 4, 2017 13 hours ago, Terry D said: This client claims his sister has an LLC and depreciates a vehicle she uses for business so he is thinking he should do the same. His argument is the vehicle depreciated due to the mileage put on ii which he is correct to the extent a vehicle naturally depreciates regardless of how you put the mileage on from either personal or business. Just have to have the right words to make all of this make sense to my client. Oh, I wondered why he wanted to use depreciation and actual expenses. The sister. Got it. As Sara pointed out, SMR does include depreciation. Sometimes you can explain, and other times I would explain AND do the 2106 both ways to illustrate. Then there are the hard headed people who are determined they know, and I let them shoot themselves in the foot. Like the ones who don't want to pay me to prepare 1099s and show up at tax time with the red IRS copy in their paperwork. I don't say a word - they got this... 6 Quote Link to comment Share on other sites More sharing options...
Abby Normal Posted January 4, 2017 Report Share Posted January 4, 2017 Putting things into layman's terms is sometimes difficult, especially the complex vehicle rules. 2 Quote Link to comment Share on other sites More sharing options...
RitaB Posted January 4, 2017 Report Share Posted January 4, 2017 2 hours ago, Abby Normal said: Putting things into layman's terms is sometimes difficult, especially the complex vehicle rules. You are so right. I spent 15 minutes yesterday with a person I just met who's about to start a business in 2017. He did not understand that "depreciate," "write off," and "deduct" meant subtract. I couldn't figure out why he kept asking me the same question: "You mean I can't take off the equipment?" I decided I need to listen a little more carefully and explain things like I'm talking to a fifth grader when I'm talking about taxes. Never underestimate your client's intelligence. Always underestimate your client's knowledge. I've got to remember that. 5 Quote Link to comment Share on other sites More sharing options...
Medlin Software, Dennis Posted January 4, 2017 Report Share Posted January 4, 2017 mmm yuck. I get asked to discuss vehicle use as well. (Umpire avocation.) Some say a (magical) person told them all miles to and from games is deductible. They also say all clothes and gear are as well. Both are incorrect if one wants to be accurate. For us umpires types (not all details are included for length, I suspect you all understand) unless we are very careful, and have another job location, we are merely commuting to and from games. Not all gear is deductible either, such as socks can be worn for other uses, even though the ones we prefer for games are $20 or more... same for wicking undershirts we like to wear. Now the $400 plus lid I put my melon in is deductible (and the best I can buy at any price) since I cannot really wear it for other uses, and I replace it after every good hit. I only have the one melon... We spend a large amount of "training" time on this issue, over a pittance of taxable income... I break even at best, given proper deductions, and I take a large number of games. Well, I actually lose, as my SWMBO of 31 years and counting gets my gross umpire pay, and I have to pay my expenses myself! It is still a great deal for me, since I get to work some great games at great parks, sometimes with one of our sons, and run around like I was still young. I have promised SWMBO to stop if I am "that guy" who cannot get where I need to be, or age 70, whichever comes first , or if I get hit in the melon and have any concussion symptoms. (Thank you for this forum. it is a nice break from my day gig, which is crazy for the next few weeks. It is my "April 15" and "October 15" rolled into a few days. Not even my dogs will come into my office this week.) 4 Quote Link to comment Share on other sites More sharing options...
Recommended Posts
Join the conversation
You can post now and register later. If you have an account, sign in now to post with your account.