Schedule C snow plow

[mwarney]

Married filing joint return and wife has a legitimate home office. Wife has her own car that she uses for business. Husband is on SSDI disability. Husband owns a truck (over 6,000 lbs) with a snow plow used solely for maintenance and to clear the driveway and entrance to her home office. The truck is registered in his name alone but is used legitimately for snow removal to the home office. He has a third vehicle for his own transportation.

I’m thinking the truck could be listed property at 50% business use (not home office since you can’t plow 10% of the driveway).

Issues:
The truck is registered in his name alone, so it cannot technically belong to the wife’s business for depreciation purposes. Also, since he is on disability he cannot file any kind of schedule C for himself to depreciate the truck.

They have been using the truck for the last two years without taking any business deduction. So if I do depreciate it for them, then in reality it was placed in service in 2007, with depreciation expense being neglected on 2007 and 2008 returns. Also, estimated FMV of the truck with plow today is $15,000. If it is depreciated with service date of 2007, then how can I come up with a FMV for the in service date two years ago?

I’m not sure how I can report this. It is a legitimate expense because the driveway needs to be kept clear for her clients. Do I analyze to much? Should I just enter it on 4562 and be done with it? Ideas?

[DonPriebe]

Some thoughts ...

Expenses must be ordinary and necessary. I live in an area that gets between 120 and 180 inches of snow a year. I pay $200 a year for snow plowing (seasonal rate no matter how much or little it snows.) Is it necessary to own a $15,000 snow plow?

If you are thinking of taking these expenses, I suggest you look at the mileage log for the truck. (What ... there isn't one?. I'm shocked.) Business usage = length of driveway times number of plows per year times four (up and back, two passes). How does that compare with the total miles put on the truck?

[AJsTax]

Quick thoughts:

Is the $15,000 firgure the lower of FMV or actual costs.
I would think that 10% of the cost of the truck would be way too much to be ordinary cost to plow the driveway. Let alone 50%.

[Gene V]

I agree with AJ, I think snow removal falls under Utilities and Services as describe in
Pub. 587.

Utilities and Services
Expenses for utilities and services, such as electricity, gas,
trash removal, and cleaning services, are primarily per
sonal expenses. However, if you use part of your home for
business, you can deduct the business part of these
penses. Generally, the business percentage for utilities is
the same as the percentage of your home used for busi
ness.

[Nashville]

Pay the Husband

If I'm not mistaken, self-employment income under $400 does not have to be reported.

Let the wife's business cut hubby a check for $250, deduct the $250 as ordinary and necessary expense, and be done with it. Forget about depreciating the truck and snow plow..

[Gretel]

If I'm not mistaken, self-employment income under $400 does not have to be reported.

Let the wife's business cut hubby a check for $250, deduct the $250 as ordinary and necessary expense, and be done with it. Forget about depreciating the truck and snow plow..

I don't think it is that easy. While this is true for SE tax this income still needs to be reported on 1040. Of course, SE is saved.

[Nashville]

Under the Threshhold

Gretel, $400 is the filing threshhold for self-employment income (1040 instructions). Making $250 he would not even have to file a return.

Having stated that, there could be a problem in deducting $250 on a joint return with no offsetting claim of income by the other spouse if a joint return is required to be filed.

I do some things for the sake of expediency, and some of them would be criticized by purists. I'll bet several of us do these things and would not admit it on a public forum such as this one.

My deduction of $250 with no offsetting income as suggested above is not an attempt to cheat by reducing income by $250. It takes an otherwise legitimate deduction of a paltry amount and keeps the issue of depreciating the snow plow and other concomitant issues off the tax return. Obviously, if the deduction were audited, I would bring up the snow plow and the auditor would most likely not want to go there.

[mwarney]

Expenses must be ordinary and necessary. I live in an area that gets between 120 and 180 inches of snow a year. I pay $200 a year for snow plowing (seasonal rate no matter how much or little it snows.) Is it necessary to own a $15,000 snow plow?

If you are thinking of taking these expenses, I suggest you look at the mileage log for the truck. (What ... there isn't one?. I'm shocked.) Business usage = length of driveway times number of plows per year times four (up and back, two passes). How does that compare with the total miles put on the truck?

I don't think milage is an accurate basis for depreciating something like this. If a person is in the snow plowing business, would he or she deduct vehicle expenses based on the standard milage rate? I don't think so. The expense comes from the wear and tear on the vehicle from pushing snow around, not from the few miles driven up and down driveways.

Well around here, $1,500 is not an unreasonable amount for snow removal. I pay $120 a shot to have our own driveway plowed. An average season runs us $800 - $1200. The "going rate" depends on how much plowing is involved. The guy says he has a long driveway and owning a plow is saving him money in the long run, which is entirely possible. If that is the case, I would think that the feds would need to make a case that the $1,500 for depreciation is excessive, and the TP should have bought a home with a shorter driveway.

[mwarney]

Is the $15,000 firgure the lower of FMV or actual costs.
I would think that 10% of the cost of the truck would be way too much to be ordinary cost to plow the driveway. Let alone 50%.

It's FMV based on NADA. $1,500 could be a bit high. Maybe he should gather estimates from local snow plowing companies to substantiate the expense. Then I could adjust his business use percentage to be in line with those estimates???

[mwarney]

If I'm not mistaken, self-employment income under $400 does not have to be reported.

Let the wife's business cut hubby a check for $250, deduct the $250 as ordinary and necessary expense, and be done with it. Forget about depreciating the truck and snow plow..

Actually, I think the IRS is pretty clear that all income must be reported.

[mwarney]

Gretel, $400 is the filing threshhold for self-employment income (1040 instructions). Making $250 he would not even have to file a return.

Having stated that, there could be a problem in deducting $250 on a joint return with no offsetting claim of income by the other spouse if a joint return is required to be filed.

I do some things for the sake of expediency, and some of them would be criticized by purists. I'll bet several of us do these things and would not admit it on a public forum such as this one.

My deduction of $250 with no offsetting income as suggested above is not an attempt to cheat by reducing income by $250. It takes an otherwise legitimate deduction of a paltry amount and keeps the issue of depreciating the snow plow and other concomitant issues off the tax return. Obviously, if the deduction were audited, I would bring up the snow plow and the auditor would most likely not want to go there.

Nash... I think $400 may be the threshold for filing schedule C and paying self employment tax but again, the IRS has always stated that all income must be reported, regardless of how little the amount.

[mwarney]

I agree with AJ, I think snow removal falls under Utilities and Services as describe in
Pub. 587.

Utilities and Services
Expenses for utilities and services, such as electricity, gas,
trash removal, and cleaning services, are primarily per
sonal expenses. However, if you use part of your home for
business, you can deduct the business part of these
penses. Generally, the business percentage for utilities is
the same as the percentage of your home used for busi
ness.

I'm just playing devils advocate here... under this asumption, any business entity would not be allowed to purchase and depreciate snow removal or any other property maintenance equipment. Suppose this was not a home office. Suppose a TP owns a building at another location, and this building has a parking lot and a long driveway. Does this mean that the TP is prohibited from expensing his own equipment?

[taxxcpa]

Title

If the title is in the husband's name and the business is the wife's, and they file jointly, does the title matter? If my wife buys some postage stamps for me on her credit card, I deduct the cost.

[mwarney]

If the title is in the husband's name and the business is the wife's, and they file jointly, does the title matter? If my wife buys some postage stamps for me on her credit card, I deduct the cost.

Good point... and as a married couple filing jointly, they are considered a single tax entity, even though she has a distinct business operation.

[Gretel]

Gretel, $400 is the filing threshhold for self-employment income (1040 instructions). Making $250 he would not even have to file a return.

Having stated that, there could be a problem in deducting $250 on a joint return with no offsetting claim of income by the other spouse if a joint return is required to be filed.

I do some things for the sake of expediency, and some of them would be criticized by purists. I'll bet several of us do these things and would not admit it on a public forum such as this one.

My deduction of $250 with no offsetting income as suggested above is not an attempt to cheat by reducing income by $250. It takes an otherwise legitimate deduction of a paltry amount and keeps the issue of depreciating the snow plow and other concomitant issues off the tax return. Obviously, if the deduction were audited, I would bring up the snow plow and the auditor would most likely not want to go there.

Ron, if MFS is used I agree with you. I don't think you were talking about MFJ.